Closing the credit gap for women entrepreneurs
The legal framework, by itself, will not change the situation—cultural norms, social expectations and business practices must be addressed.
When laws are not enough
A report complementing The World Bank's Women, Business and the Law 2016
Since 2009, as part of its Women, Business and the Law project, The World Bank Group has undertaken an annual study of laws, regulations and policies affecting the ability of women to participate fully in the economic life of their societies. The study, which has grown to encompass more than 170 jurisdictions, paints a picture of a world where women continue to face barriers to economic empowerment. As summarized in the 2016 study, 155 of the economies under scrutiny "maintain at least one barrier for women…that does not exist for men"; and in 100 of them, "women face gender-based job restrictions."1
As Chief Economist of the World Bank Kaushik Basu emphasizes in his preface to the 2016 study, the argument for equality of opportunity should never cease to be a moral one—to reform laws and regulations in this direction is simply the right thing to do—but women's economic empowerment also carries practical benefits for the whole of society. Progress is being made. As the World Bank study notes, 65 countries have carried out legal and regulatory reforms over the past two years geared toward increasing women's economic empowerment.
When it comes to doing business, however, laws and regulations are hardly the whole story. Entrenched social norms often exist in tension with the law and operate to undercut progress. In Kenya, for example, despite the passage of the Land Commission Act of 2012, which gave women the legal right to own land, estimates suggest that in practice, women own land at a rate of just one percent, with only about five percent of land held jointly by women and men.2 In Brazil, though women have the same inheritance rights as men under the civil code, customary practices continue to exclude women from land inheritance.3 Land goes to sons, not daughters
It is evident that cultural norms, social expectations and business practices determine how things work, and that the legal framework, by itself, will not change the situation. More research is needed to inform how best to tackle such norms and practices. This recognition lies behind this collaborative study of 14 countries undertaken by White & Case, Goldman Sachs pro bono volunteers and Women's World Banking. This project brings together the power of a global law firm, a leading investment bank and the global leader in women's financial inclusion to address a critical global challenge at the intersection of law, finance and social norms: how to ensure the legal rights and social acceptance necessary for small and medium-sized women-owned businesses to access the capital they need to grow.
Overall, this analysis is designed to spur constructive action on the part of governments, private enterprise and NGOs by providing a more holistic picture of conditions affecting women's access to capital and collateral. Action is especially urgent in light of the significant credit gap faced by women entrepreneurs. According to a study by McKinsey and the IFC, there is about a US$1.5 trillion credit gap for formal small and medium-sized enterprises (SMEs) globally.4 Goldman Sachs estimates there is a US$285 billion credit gap when it comes to women-owned SMEs in particular.5
These countries were selected because they are currently being targeted by a first-of-its-kind global loan facility launched in 2014 by Goldman Sachs and the International Finance Corporation called the Women Entrepreneurs Opportunity Facility. This facility aims to help close the credit gap by enabling more than 100,000 women to access the capital they need to grow their businesses. To date, it has committed more than US$850 million of investment from the public and private sectors to help financial institutions expand lending to women. As such, it presents one model of the kind of effective intervention that is the end-goal of this project.
Credit gap estimated globally for small and medium-sized enterprises (SMEs)
Credit gap estimated for women-owned SMEs
Source: McKinsey; Goldman Sachs
Remaining gaps in legal frameworks and substantial inequities in social norms—from prevailing stereotypes to common marital arrangements—continue to hinder efforts to close the credit gap.
Continuing legal gaps
Most jurisdictions have basic laws (in the Constitution, or in Civil or Labor Codes) advancing women's economic equality as a general principle. But too often these remain abstract doctrines, not fully complemented by other legal provisions, bolstered by government programming, or supported by continuing social practices. Brazil is an example of a jurisdiction where constitutionally enshrined equality is bolstered by further legal provisions (the Consolidated Labor Law) as well as government programming for low-income families.
Parallel legal systems
In many jurisdictions, parallel legal systems limit the rights of some women. Of special note are countries such as Sri Lanka that have different legal systems for persons of different ethnic or religious backgrounds. In Kenya, Islamic law—which applies to Muslim citizens—is in tension with civil law in areas such as property rights and inheritance. We found that "in regions in Kenya where Islamic law is prominent, many statutes don't even apply, since the provisions on equality espoused in the Constitution are 'qualified to the extent strictly necessary for the application of Muslim law before the Kadhis' courts…in matters relating to personal status, marriage, divorce and inheritance.'"6 Thus legal obstacles to women's financial inclusion surface even before one takes into account the prevailing social norms.
Limited awareness of their rights, restricted access to collateral and other practical limitations often hinder women's ability to enter the business sphere, even where there are no legal restrictions. In Kenya, for example, our report finds that "There are practical obstacles to women asserting their property rights in Kenya, including women's lack of awareness about their legal rights, the time and expense of pursuing property claims, violence, social stigma, poverty and harassment of NGOs working on women's property rights."7
Marital arrangements can have a disproportionate effect on women's economic situation. Even in jurisdictions that broadly endorse equality for unmarried women, entering into marriage can radically restrict a woman's rights. For instance, the Democratic Republic of Congo imposes restrictions on married women in many areas of business activity.
The impact of social norms
In many jurisdictions, the practical effect of legally enshrined principles of equality is limited owing to restrictive social norms.
Take the question of mobility as it relates to women's professional prospects. "There do not seem to be any legal restrictions on a woman's mobility, or ability to establish a business anywhere," our study on India notes.
However: "In practice, mobility restrictions on women do exist, and are dependent on how the family and community view women's rights. For instance, a single woman asking for a room is often looked upon with suspicion. Data on women's mobility in India indicates that only about half of women interviewed had the freedom to go to the market or a health facility alone. More specifically, 79 percent of urban women from the highest education brackets and only about 40 percent of rural women without education were allowed to go to the market alone."8
Limited awareness of their rights, restricted access to collateral and other practical limitations often hinder women's ability to enter the business sphere, even where there are no legal restrictions.
From awareness to action
The authors intend this research to serve as a resource for women entrepreneurs to know their rights; for financial institutions to adopt more inclusive business practices, create innovative new products, and increase investment in women-owned businesses; and for governments, civil society and the media to protect and enforce women's rights so that they are fully empowered in society.
There are many ways to help. Can you use these findings and other research to raise awareness or advocate for reform or new laws or regulations? Can you initiate or influence actions by your employer? Can your organization help change social norms by supporting women directly in any number of ways? Are you a journalist who can help bring about change through your reporting or commentary?
Capital is available for women entrepreneurs, but they cannot access it freely in every society. Giving women the financing, permission, encouragement and incentives to take their businesses to scale is a powerful and necessary step to achieving the world's full economic potential.
ACTIONS TO CLOSE THE CREDIT GAP
Address the remaining legal and regulatory barriers
• Draft or advocate for more inclusive laws or regulations where gaps exist in constitutional or domestic law
• Advocate for change in marital law and the evolution of traditional legal systems
• Identify cases or bring litigation to challenge discriminatory laws or establish new rights
Help women entrepreneurs help themselves
• Train women about their legal rights
• Build or strengthen grassroots movements and mentoring programs to support and promote women entrepreneurs
Change business practices in the workplace and the financial services sector
• Institute purchasing policies to buy from women-owned businesses
• Set up a moveable collateral registry
• Train retail bank employees on the law and how they are expected to serve women customers
• Analyze banking, loan and credit product data by gender to find where bias may be most prevalent
• Commit more capital for funding women-owned SMEs
• Incorporate training for women entrepreneurs on their legal rights into existing initiatives, such as around financial literacy
• Create new channels to target women entrepreneurs
• Tailor business development for women entrepreneurs and incorporate training about their rights and financial literacy
• Institute policies to accept more types of collateral
• Introduce innovative insurance products, loans or mortgages designed to mitigate social barriers
• Explore ways digital financial services can help
OBSTACLES TO CLOSING THE CREDIT GAP
• Legal gaps
• Conflicting statutes
• Parallel legal systems
• Prevailing stereotypes
• Discriminatory business practices
• Differential access to justice
• Limited definitions of collateral
• Limited land ownership
• Marital property rules and norms
• Restricted movement
This study examines legal frameworks across 14 jurisdictions, but does not stop there—taking social norms into account provides a fuller picture of conditions affecting women entrepreneurs.
White & Case and Goldman Sachs pro bono volunteers carried out detailed studies of the relevant legal landscape in 14 countries: Brazil, Cambodia, China, Chile, Costa Rica, Dominican Republic, the Democratic Republic of Congo, Ecuador, India, Indonesia, Kenya, Laos, the Philippines and Sri Lanka.
Each country study is meant to complement the data furnished by the World Bank's Women, Business and the Law project. White & Case lawyers from 16 offices partnered with volunteers from the legal department and other divisions at Goldman Sachs in 10 locations to examine conditions facing women entrepreneurs along three main axes: business law; banking and regulation; and property rights and access to collateral. These efforts encompassed property law, inheritance law, bankruptcy law, credit reporting, interest rate regulation, the process of obtaining a national form of identification and more for each country covered.
To complement these findings, Women's World Banking examined social and cultural norms faced by women entrepreneurs who seek access to capital and collateral in four of the countries studied: Brazil, Kenya, India and the Philippines.
AT A GLANCE
Are there discriminatory laws or legal gaps in the Constitution, legislation or regulations of these countries?
The country reports
Click on the links below to read the country summaries and download the underlying country data for each country.
Questionnaire on legislation, regulation and practices impacting women's access to financial inclusion
a. Corporate formation
i. Briefly summarize the process for registering a business entity.
ii. What types of legal business entities exist in the jurisdiction?
iii. Can personal liability be limited through the formation of certain business entities?
iv. Are there any restrictions on forming a business that are specific to either married or unmarried women?
v. Are women allowed to own shares in a corporation?
vi. Are women permitted to be sole proprietors?
vii. Are there any restrictions on women (or men and women) forming partnerships?
viii. Does the jurisdiction have a mechanism for pledging shares in a company as collateral for a loan?
i. Can women independently enter into contracts?
ii. Are there any restrictions on a woman's ability to enter into a contract, including whether she is married or requires a male co-signer?
c. Employment law
i. Can women hire employees?
1. Please describe any restrictions.
2. Are there equal opportunity laws?
d. Other – Freedom of movement/establishment
i. Are there any laws restricting women's mobility or restrictions in areas in which women may reside or establish a business?
BANKING AND REGULATION
i. Can women independently apply for and borrow money?
b. KYC/National IDs
i. What is the process for obtaining a passport or other form of national identification?
ii. What type of ID is needed to open a bank account? Can women use birth certificates to open a bank account?
iii. Which types of forms of identification can women apply for in this jurisdiction?
iv. Are there any restrictions on obtaining a passport or other form of national ID that are specific to women (either married or unmarried)?
v. Please describe any other Know Your Customer (KYC) regulations that women may need to comply with when transacting business with financial institutions (including opening accounts, opening lines of credit and/or entering into loan agreements).
c. Bank accounts
i. Can women open bank accounts in their own name?
ii. What can be considered collateral and viable assets?
iii. Who can be guarantors?
iv. Can women be the sole owner of a bank account?
d. Credit reporting
i. Does the jurisdiction, either through the government or through private companies, have a mechanism in place for gathering information and providing credit reports of individuals?
ii. Is credit reporting the same for men and women?
e. Interest rates and usury laws
i. Are there any caps on interest rates that financial institutions can charge on private loans?
ii. Does the jurisdiction have laws or regulations in place to prevent usury? If so, do the usury laws extend to private transactions between individuals?
i. Is microlending permitted in the jurisdiction?
ii. What, if any, regulations exist in respect of microlending programs?
PROPERTY RIGHTS AND ACCESS TO COLLATERAL
a. Property law
i. Can women independently apply for a home/property title?
ii. Can women independently maintain a home/property title? Are there limits to women using/leasing land versus owning?
iii. Can women independently lease and use property for business purposes?
iv. Can women independently own real property?
v. Is there a registry of real property ownership? If so, can women register their ownership of real property?
vi. Can women independently own movable property?
vii. Are there any laws that prohibit women from using real property as collateral for a loan?
viii. Are there any laws that prohibit women from using moveable assets as collateral for a loan?
ix. Are there any laws or government programs that encourage, promote or subsidize land and property ownership and/or equitable distribution of property rights?
b. Inheritance law
i. Under the inheritance laws of the jurisdiction, to whom does property of the deceased pass?
ii. Can women inherit property as a matter of law?
iii. Can women inherit property as set forth in a will?
iv. Can married and unmarried women write wills?
c. Marriage and divorce law
i. Please describe how ownership of property is allocated in a marriage.
1. What happens to property that the individuals owned before they were married?
2. Is marital property jointly owned or does the husband (or wife) become the sole owner of all property?
3. Do the individuals retain ownership of their pre-marital property?
ii. What happens to property that is acquired during the marriage?
iii. Do women get credit for their contributions to the family, whether such contributions include caring for children and the household or working outside of the home?
iv. Is divorce legal, and are women able to initiate divorce?
v. If divorce is legal, how is marital property split in the event of a divorce?
d. Bankruptcy law
i. Does the jurisdiction have a bankruptcy code?
1. If yes, can men and women access the bankruptcy system in the same way?
ii. Are there criminal sanctions for defaulting on debt?
e. Intellectual property law
i. Does the jurisdiction have a formal procedure for creating intellectual property rights, including trademarks, copyrights and/or patents? If yes, please briefly describe the process to obtain such intellectual property rights.
ii. Can women independently create and own intellectual property rights?
iii. Are there any restrictions on women (or men) filing for intellectual property rights protection in respect of trademarks, copyrights and/or patents?
ACCESS TO JUSTICE
i. Briefly summarize the remedies for a breach of contract.
ii. Do women and men have access to the same remedies for breach of contract claims?
iii. Do women have the same rights as men to bring contract disputes and other disputes before a court of law or tribunal?
iv. In what venue are contract disputes heard?
1. Do men and women have access to the same venue for resolving disputes?
i. Are there laws in place that prohibit bribery, either of public officials or private persons?
1—World Bank Group. "Women, Business and the Law 2016: Getting to Equal." Copyright 2015, International Bank for Reconstruction and Development. Accessed 2/12/16.
2—Gaafar, Reem. "Women's Land and Property Rights in Kenya." Copyright 2014, Landesa Rural Development Institute. Accessed 2/12/16.
3—Cotulo, Lorenzo. "Gender and Law: Women's Rights in Agriculture." Copyright 2002, Food and Agriculture Organization of the United Nations. Accessed 2/12/16.
4—Stein, Peer et al, "Closing the Credit Gap for Formal and Informal Micro, Small and Medium Enterprises." Copyright 2013, International Finance Group. Accessed 2/12/16.
5—Stupnystka, Anna et al. "Giving Credit Where It Is Due: How Closing the Credit Gap for Women-Owned SMEs Can Drive Global Growth." Copyright 2014, Goldman Sachs Global Markets Institute. Accessed 2/12/16.
6—White & Case and Goldman Sachs. "Legislation, Regulation and Practices Impacting Women's Access to Financial Inclusion." 2016.
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