Could technology help address the gender inequality faced by many female entrepreneurs — and unlock $trillions in growth?
Clear Factor believes that the application of novel financial technology has significant potential to address gender inequality — specifically in the area of business funding.
We are currently building one such application: a global decentralised ecosystem to provide invoice finance to SMEs — set to provide a better process for women looking to access working capital for their business.
Gender inequality and entrepreneurialism
The gender inequality debate is typically dominated by large enterprise and the twin issues of unequal representation in senior roles and the gender pay gap. Whilst these are undoubtedly significant, so too are the challenges that female small-business owners face when securing funding. This area however has yet to receive the credit it deserves, to coin a phrase. So what are the issues?
An 2015 European Central Bank report found that “in countries with higher gender bias, female-owned firms are more frequently discouraged from applying for bank credit.”
Meanwhile in the UK, the recent Rose Review estimated £250bn of growth could be unlocked if women started and scaled new businesses at the same rate as men. It found that only one in every three entrepreneurs were female and that female-led businesses were on average just 44% of the size of male-led businesses, commenting that:
“Access to and awareness of funding was highlighted as the number one issue for female entrepreneurs across the entire entrepreneurial journey…. Indeed, female-led businesses receive less funding than those headed by men at every stage of their journey. Start-up funding is the #1 barrier mentioned by women non-entrepreneurs: women launch businesses with 53% less capital on average than men, are less aware of funding options and less likely to take on debt. Only 1% of all venture funding goes to businesses founded by all-female teams, inhibiting scale up.”
In the US, the situation is similar. One study found that just 1$ in every 23$ loaned went to women-owned businesses — despite women owning 30% of all small businesses. And a U.S. Senate report found that despite women applying for business loans at similar rates to men, just 39% of women-owned businesses receive bank loans, compared to 52% of male-owned firms.
Beyond the Western world, the situation may be worse. In some countries, such as Saudi Arabia, women must have a male sponsor in order to apply for a business loan (a policy phased out in the US in 1988). Across the globe, policies and statistics vary, but it’s clear that business-funding inequality for female entrepreneurs is a major barrier to global growth.
So why do we think Clear Factor could help?
First we must ask why this complex situation exists. For while women-owned businesses are clearly not getting their fair share of credit globally, the reasons why are much harder to grasp.
A UK Women’s Business Council progress update published last year attempts to identify specifics. It found that 39% of women applying for business overdrafts in the UK reported “problems with process” versus 30% of men; and 41% of women that stopped applying reported “discouragement” was the main reason (up from 23% in 2013).
Discouragement has been defined elsewhere as the idea that “female business owners are more likely to be discouraged from applying for a bank loan compared to male business owners because they fear that their application will be rejected”
One remedy to the negative feedback effect that discouragement precipitates was suggested in the ECB’s report: namely for “banks to recruit and train female loan officers… less subject to a gender bias … [which] could encourage female entrepreneurs to apply for loans.”
This is a people-based solution to a people-based problem. It presupposes that the issue is due to human bias and interaction rather than active discrimination (via policies or practices).
It also remains squarely within the confines of the status quo — i.e. the present financial system in which business loans require various stages and levels of human-based involvement.
What if the issues are so pervasive across various stages of the existing system that people-based solutions, such as hiring more women into certain roles, would not overcome it?
For the women of Saudi Arabia, who require male sponsors as part of the process, it would certainly not help on its own. Instead women have found new routes to entrepreneurism, using platforms such as Instagram to bypass the need for licences or loans to launch their own businesses.
Perhaps a more radical solution is required to stop this “unacceptable, gender-discriminating status quo”, as UCL’s Professor Robert M. Sauer proposed earlier in the year:
“Radical disruption in the market for business loans is sorely needed to help level the playing field for female entrepreneurs. The answer to that call may lie in tokenization and more widespread use of cryptocurrencies, which are out of the control of the traditional banking sector.”
Clear Factor believes that tokenisation technology will indeed enable a radically new business ecosystem for those seeking and providing credit. Such a system will be secure, pseudonymous and censorship-resistant. These qualities have the potential to address aspects of gender inequality in business funding for women: by opening up the process across borders, removing human interaction and bypassing some of the legacy processes that may contribute to discouragement.
For example, a female entrepreneur with a smartphone anywhere in the world should be able to locate potential lenders regardless of location, without need for third-party involvement. Technology would automate the process and ensure a secure contract, accurate credit score and the fast release of funds. Human involvement would be minimal, and with it reduce the twin issues of gender bias and perceived gender bias. By creating a new process to access working capital, the feedback effect that discourages loan applications would be subverted.
The size of the prize is enormous. A 2018 BCG analysis of 350 firms found that startups founded or co-founded by women generated 10% more cumulative revenue over five years than those founded or co-founded by men — despite attracting less than half the investment. McKinsey estimate that the women’s equality growth opportunity could add $12tn to global GDP by 2025. As we build up our global marketplace for invoice finance, we are incredibly excited at the prospect of playing our part of unlocking this growth.
You can read more about our project, goals and timeline at our website. Please follow us on Medium to receive our latest updates.
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