Women capital access laws - we need them as reforming laws to give women access to capital.
Governments can deploy a number of policy tools to expand access to capital for mini-SMEs. The data suggests that the first reason bank loan applications are denied is that applicants do not offer acceptable or suitable assets as collateral for the loan.
If the company is unable to repay a loan secured with a guarantee - which can range from real estate to receivables - the lender can seize those assets and sell them to try to recover the money.
Although it does not seem that women are rejected more often than men, they are less likely to apply for loans to begin with, citing their lack of collateral.
Women capital access laws
But what if the problem is not so much a lack of assets as a legal framework that does not allow the assets that women own to be used as collateral?
Land and buildings make up 73% of the assets used as collateral by banks in developing countries. But about 40% of countries somehow limit women's property rights.
The laws prohibit a woman from owning property or require her husband's consent before she can take out a loan on a property, even if that property was acquired during the marriage or the woman contributed it to it. Other restrictions are the impossibility of claiming property in case of dissolution of marriage and the absence of inheritance rights for wives and daughters.
These discriminatory legal frameworks often reflect restrictive social and cultural norms and, as a result, much-needed reforms have been slow.
Women capital access laws news
Meanwhile, an increasing number of countries are moving to allow the use of a company's assets, such as equipment or inventory (so-called collateral), opening the door for women who do not have access to land or property to get loans. The expansion of the types of assets that companies can use to raise funds can also lead to the development of a more diverse set of financial instruments and the creation of institutions aimed at catering to small businesses.
For example, a farmer could finance the purchase of a tractor using the tractor itself as collateral, through a traditional bank loan or perhaps through an equipment leasing company.
When evaluating a loan application, banks also look at the borrower's repayment history, but in many developing countries government credit bureaus have data mainly from large companies. This leaves banks with little information to consider new loans to companies run by women.
Many credit bureaus in developing countries exclude information on repayments from microfinance institutions, which are often the only lenders willing to extend loans to small businesses run by women. As a result, even if a company has an impeccable history of repaying loans to a microfinance institution, it has to reset its credit history in search of a bank loan.
Women capital access laws summary
- For example, when the Afghanistan credit registry started collecting repayment data from microfinance institutions, banks were able to incorporate this information into their credit approval processes. Loans to women based on the data of credit records went from insignificant to 20% of the total loans granted in just 18 months.
- Banks, especially in developing countries, have been slow to design products that respond to women's needs. As a result, the money is stopped.
- Making it easier for women to access loans and other types of financing would be a great help for the banks themselves and the economies of their countries.