Hello! Wake up all you men in the financial services and banking business! You have been lending to the wrong half of the world’s population ! Women deserve a lot more finance than men! Here is why:
Women have long been disadvantaged when it comes to access to credit or other financial services provided by banks. This holds especially true for women entrepreneurs running informal businesses. Banks often focus on formal businesses, and when they do open their door for small business loans, they are more likely to serve men, who traditionally have greater ownership, and therefore have more control, over land and capital. Female business owners, on the other hand, are often overlooked. This is a great missed opportunity, let me tell you why…
Deemed as less creditworthy than their male counterparts, many women entrepreneurs in rural areas resort to micro-finance institutions (MFIs) for funding. Interestingly enough, many MFIs have proven from years of hands-on experience that women are generally a better credit-risk than men.
Women borrowers of MFIs have consistently demonstrated extremely high repayment rates. Mekar’s lending partner Komida (Koperasi Mitra Dhuafa), a cooperative with 153 branches and some 370,000 borrowers — all females, mind you, regularly see 99.7% of their borrowers pay back their loans on time.
Two other cooperatives that offers micro loans exclusively to women entrepreneurs, Karya Usaha Mandiri and MBK Ventura, also record high repayment rates, at 98% or more, year after year. Furthermore, a number of studies have found that women around the world consistently outperform men in terms of loan repayment.
It’s curious how a group of people pose a credit risk for one type of financial institution but are seen as a valuable customer for the others. There are many reasons why women borrowers are less of a headache for many MFIs. Here are some of them:
One of the issues is that, for most women, getting a loan for their small business is not easy. It takes time, and loans are harder to find than if they had bigger businesses. In many cases, the MFIs are their only option if they don’t want to fall prey to loan sharks.
Komida’s Operations Manager Sugeng Priyono says one of the main reasons that Komida’s women borrowers pay back their loan on time is because they want to ensure their continued access to credit and be able to get another loan in the future, more so than men.
Fear of feeling ashamed for non-payment
Sugeng also pointed out that women sometimes “express fear of feeling ashamed if their friends or neighbors find out that they did not repay their loan on time”. Women feel a greater urge to be a good borrower, more so than men due to this fear of criticism. They also feel the fear of failing at keeping their business running. Their family income depends on it.
More conservative investments
Women are also more conservative or cautious than men in their investment strategies. Case in point: the borrowers of Karya Usaha Mandiri. Murtadho, the director of the cooperative says his clients mostly propose a loan in the amount that they know they would be able to repay, and not based on how much they need.
Stronger relationship with loan officers
Contact with MFI staff also plays an important factor. MFIs usually hold a group meeting once a week where borrowers meet with their loan officers to get a loan approved or to repay their loan. In many cases, women are more likely to attend this kind of meeting because they see it as an opportunity to go out of their homes and have a little social time for themselves.
Murtadho says his cooperative used to give loans to both men and women. But that didn’t last long. Murtadho attributed the men borrowers’ low repayment rates on their reluctance to attend the weekly group meeting.
“The men would only attend the group meeting for the first few months,” Murtadho said. He highlighted that the men borrowers found it hard to regularly come to the meetings because their main activities were in the workplace. “The women, on the other hand, have been having no trouble coming,” he adds.
At such meetings, fellow borrowers discuss with the loan officers their problems and experiences in relation to growing their businesses. Sugeng says Komida’s staff in regions far afield usually go even further, visiting borrowers in their homes when they get sick or when they have a baby.
This kind of relationship proves to have a positive effect in terms of loan repayment. Sugeng says Komida’s borrowers pay back their loan on time because they feel the need to maintain this relationship with the loan officers.
Bottom line is, they are more reliable
Most importantly, women borrowers seem to have a greater sense of responsibility. “Our borrowers believe that no matter what happens, a debt must be paid,” Sugeng said.
Dr. Shafiq Dhanani, the founder and CEO of MBK Ventura, adds that women repay better because it is nearly impossible for them to pack up and leave their homes. They have obligations to their children and extended family. Men in Indonesia sometimes, if they default on their loans, will pack up and leave for a while to avoid the collectors. Women stay and pay because they have a greater sense of responsibility.