Financial Inclusivity for Women in the Commonwealth: Post COVID-19 challenge?

VIEW FROM THE COMMONWEALTH WOMEN PARLIAMENTARIANS CHAIRPERSON

Commonwealth Women Parliamentarians (CWP) Chairperson, Hon. Shandana Gulzar Khan, MNA (Pakistan)

Financial inclusion refers to efforts to make financial products and services accessible and affordable to all individuals and businesses, regardless of their personal net worth or company size. Financial inclusion strives to remove the barriers that exclude people from participating in the financial sector and using these services to improve their lives. It is also called inclusive finance. 2

Globally, it is not lack of intention or legislation but often social norms that constrain women’s capacity to access and meaningfully use financial services. Greater access to financial services for women is considered a key enabler for ‘Gender Equality and Women Empowerment’, i.e. SDG 5, one of the 17 Sustainable Development Goals (SDGs) and Agenda 2030 of the United Nations.

The momentum for financial inclusion of women is increasing rapidly; the World Bank’s 2018 Global Findex database reveals that although access to financial services for women has sharply increased since 2011, the financial inclusion gender gap in developing economies is still unchanged. It is also clear that full financial inclusion will not be possible without including women into the formal financial system.

The Importance of Gender Equality: Gender equality is both the ‘right thing’ and the ‘smart thing’ for all countries. In addition, the Commonwealth has been a strong advocate through its Declaration on Gender Equality and Plan of Action on Gender Equality and Women’s Empowerment. The gender gap varies widely across economies and regions among Commonwealth countries, the gender gap (with women being less likely to have accounts than men) was the highest for India, Pakistan, Trinidad and Tobago, Mauritius and Uganda. There is no significant gender gap in account penetration in some Commonwealth countries like New Zealand and Singapore. 3

But the question arises as to why financial inclusivity is important for women in the Commonwealth? According to research by the McKinsey Global Institute advancing gender equality could unlock US$12 trillion of incremental GDP in 2025 with financial, and particularly digital inclusion, being among the key enablers for making progress on gender equality. 4 Moreover, according to the World Bank, advancing gender equality by addressing the gender wage gap globally could unlock US$160 in lifetime earnings. 5

Do these considerations still remain valid in the times of COVID- 19 as the pandemic remains and will remain a significant health cost for so many in the Commonwealth?

Financial literature shows that closing the gender gap in financial inclusion could have positive effects in smoothing consumption, providing security, increasing saving and investment rates, and facilitating new business opportunities. Yet, despite dramatic successes in digitizing basic financial products in some parts of the world, women still face significant hurdles to accessing and using digital financial services particularly when mobile phone ownership of women is low. 6

Financial inclusion is important for women to access loans, credit and to make transactions, but it is also essential to save money and build assets in a safe place, which can in turn take them out of poverty. Savings interventions increase women’s business earnings. Women seek savings vehicles, and use personal savings to invest in their businesses. 7 Evidence on savings also shows impacts on women empowerment 8 and positive household welfare impacts. 9 Studies show that even poor women are eager to save if given appealing interest rates, a conveniently located facility, and flexible accounts - with bankers in Indonesia, rural Mexico and South Asia finding that convenience generally beats interest rates. 10

In short, closing the gender gap in financial inclusion can act as an enabler of countries’ development, economic growth, inequality reduction, business evolution, and social inclusion. However, greater women’s financial inclusion requires a more gender inclusive financial system that addresses the specific demand - and supply-side barriers women face as well as an inclusive regulatory environment. 11

Some positive developments in the Commonwealth 12: Africa is now the world’s second fastest growing region after Asia, with annual GDP growth rates in excess of 5% over the last decade. However, despite the good economic growth shown, this has not translated into shared prosperity and better livelihoods for the majority of the population. Growth has to be inclusive to be socially and politically sustainable.

The recent growth of mobile money (including forms of ‘branchless banking’) and digital financial services have allowed millions of people who are otherwise excluded from the formal financial system to perform financial transactions relatively cheaply, securely, and reliably. Mobile money has achieved the broadest success in Sub-Saharan Africa, where 16% of adults report having used a mobile phone in the past 12 months to pay bills or send or receive money.

In Kenya, where the pioneer M-Pesa service was commercially launched in 2007, 68% of adults report using mobile money and M-Shwari, which in 2015 boasted having some 10 million account holders. In East Africa, more than 35% of adults report using mobile money, and commercial banks such as Equity Bank (Kenya) Limited, Co-operative Bank of Kenya and Kenya Commercial Bank (KCB) are also very active players in this market.

Dimensions of women’s financial inclusion: What are then three key pillars of this magic pill which will enable millions of families across the Commonwealth to work their way out of poverty and the recent pandemic-influenced difficulties affecting both finances and greater access to health services?

1. Access: This refers to the availability of formal financial products and services (savings, credit, insurance, mobile banking, etc.) and includes the physical proximity of these services, as well as their affordability.

2. Usage: This is the extent to which women make use of the products and services on offer, the rate and frequency of use, and the length of time that they continue to use the service.

3. Quality: Have the financial products and services been innovatively developed to meet the specific needs of the wide range of women clients, from entrepreneurs to farmers, and from women in salaried employment to poor women or women engaged in the informal economy? 13

Barriers and constraints that women face in seeking to access financial products and services 14: The second and third parts of this article will focus on the strategies and practical results achieved by nations in the Commonwealth before and more importantly, during COVID-19 for improving financial inclusion. However, for any framework, these must be derived from addressing country-specific constraints and gaps. The following is a brief outline of these constraints.

Legal and regulatory barriers: Legal obstacles include inheritance laws that disfavor daughters and wives, property rights that fail to protect women’s ownership and formal restrictions on women’s ability to open bank accounts and access credit. Among cultural norms is the requirement that a husband or male family member co-sign a loan. According to the IFC, of 143 countries studied almost 90% have at least one legal difference between women and men that restricts women’s economic opportunities. Among these economies, 28 have ten or more legal gaps and in 15 of them, husbands can prevent their wives from accepting jobs.

Access to education and training: Less-educated women are less likely to start their own business, and lower levels of education may contribute to lower survival rates among women- owned Micro, Small & Medium Enterprises (MSMEs). Women may have less access to financial literacy, which can make it harder for them to navigate the loan market due to limited or no credit history, incomplete or missing financial statements, limited savings etc.

Culture and traditions: Female entrepreneurs might choose to enter less capital-intensive industries that require less debt. Additionally, as women-owned MSMEs tend to be smaller, banks may incur higher administrative costs relative to loan sizes, which reduces the incentive for them to lend to these women. In some countries, women may find it challenging to obtain national identification documents often required for opening an account.

Lack of collateral: Overall, women may find it more challenging to provide collateral and personal guarantees and may have weaker credit histories (‘reputational collateral’). Husbands’ adverse credit histories may also affect women as they might need to repay a husband’s debt or could be denied future credit based on the husband’s credit history.

Anticipation of rejection: Studies show that women may be discouraged from applying for credit because of the anticipation of rejection. The rejection rate for loan applications has tended to be higher for women-owned businesses in the developing world, as for instance, in one Commonwealth member where the rejection rate for loans to women-owned businesses is 2.5 times higher than that for men (Goldman Sachs, 2014).

Risk aversion: Women, especially in lower income groups, tend to be more cautious than men about the amount of financing and business risk they are willing to take on.

It is clear that there are many challenges to closing the gender gap in financial inclusion and the current COVID-19 pandemic has certainly increased these challenges. However, it is clear that greater financial inclusion for women can act as an enabler of individual countries’ development and it can have an impact on economic growth, the reduction of inequality, greater business development and social inclusion for women.

References:

1: The Author has relied principally on the research and compilation by Gerry Finneganin his discussion paper for the Commonwealth Secretariat titled 'Strategies forWomen’s Financial Inclusion in the Commonwealth'

2: World Bank Global Findex 2011

3: Strategies for Women’s Financial Inclusion in the Commonwealth-Discussion Paper-October 2015- by Gerry Finnegan

4: Wodon, Quentin T.; de la Brière, Bénédicte. 2018. Unrealized Potential: The High Cost ofGender Inequality in Earnings. The Cost of Gender Inequality. Washington, DC: World Bank.

5: Aldana and Boyd, 2015

6: Holloway, et al. 2017; Trivelli and de los Rios, 2014

7: Karlan et al. 2016

8: Morduch, J., 1999, Trivelli & Montenegro, 2011

9: Strategies for Women’s Financial Inclusion in the Commonwealth-Discussion Paper-October 2015-by Gerry Finnegan

10: Strategies for Women’s Financial Inclusion in the Commonwealth- Policy Brief-October 2015

11: Strategies for Women’s Financial Inclusion in the Commonwealth-Discussion Paper-October 2015-by Gerry Finnegan

CWP Chairperson speaks about supporting women entrepreneurs at UN Women webinar

The Commonwealth Women Parliamentarians (CWP) Chairperson, Hon, Shandana Gulzar Khan, MLA has spoken about supporting women entrepreneurs and women in leadership positions at a UN Women Pakistan webinar on the ‘Impact of COVID-19 on Women’s Entrepreneurship: Challenges and Opportunities’. The CWP Chairperson was speaking alongside a number of key speakers from the Asia Region in an event supported by the African Development Bank and the Islamic Development Bank. To view the webinar visit: https://bit.ly/39fSc6m.