81995 ESTABLISHING A BASELINE FOR LENDING TO WOMEN-OWNED SMES THEME: SUPPORTING WOMEN IN BUSINESS Establishing a Baseline for Lending to Women-Owned SMEs among IFC- Financed Financial Institutions An analysis of more than 2,200 enterprises receiving small and medium-size enterprise (SME) loans from 34 IFC client financial institutions in 25 countries showed that, overall, about 16.4-18.5% of the loans were is- sued to women-owned SMEs, with regional variations from 5.7% to 28.1%. This indicates quite a low access to finance for women entrepreneurs and overall low women’s ownership in emerging markets. It is estimated that in CY11, IFC clients had about 490,000- 820,000 loans issued to women-owned SMEs, or 15-25% of 3.3 million SME loans. Survey and Methodology women-owned enterprises through a bank question- naire, which revealed that the banks were unable to In 2012, IFC conducted the “SME and Women-Owned provide information on their SME clients on a gender- SME Baseline Survey” to determine the share of female- disaggregated basis. owned SMEs financed by IFC’s client banks worldwide and to establish a baseline (‘the gender baseline’) and The study defined “Women-owned SMEs” as firms to learn more about the characteristics of these firms. with 51 percent-plus women’s ownership3 and which received loans from $10,000 to $1 or 2 mil- IFC surveyed 34 banks in 25 countries in all six regions, lion4 at origination (SME loan size proxy used by IFC which accounted for about 10 percent of the Financial for financial institutions5). Where specified, an expanded Markets (FM) Department’s micro-, small, and medium- definition, which is a proxy to the current IFC’s women- size enterprise (MSME) reach reporting portfolio1 by owned SME definition6, was used. In this case, women- number of banks, and represented the regional portfo- owned SMEs were defined as firms with either more lio distribution at the time of the survey. For each bank than 51 percent women’s ownership, or with 26-50% surveyed, 90-100 SME loans were randomly selected women’s ownership in a business that has a woman (with roughly 30 or more in each MSME category2) and CEO or COO, and which received loans from $10,000 to reviewed to get detailed information on the enterprises $1 or 2 million at origination. that received financing. This included the percentage of female ownership, number of employees, annual sales, A total of 3,157 randomly selected SME loans were re- total assets, women in top management, sector of op- viewed during the portfolio sampling. Out of these, erations, and other data. The portfolio sampling method 2,269 were classified as SMEs based on the SME loan size was utilized after attempts to collect information on proxy and had information about owner gender. These 2,269 SMEs allowed for statistically sound estimates, with Table 1: Number of observations and confidence regional 95% confidence intervals within +/- 6%, and the interval at 95% confidence level by Region overall sample ones within +/-2.5% (Table 1). More de- NUMBER OF CONFIDENCE tailed information can be found in Ernst & Young’s re- REGION OBSERVATIONS INTERVAL port on establishing gender baseline estimation for IFC’s EAP 335 +/− 5.3% Financial Markets’ portfolio, 2013. LAC 446 +/− 4.6% ECA 469 +/− 4.5% Establishing a Baseline for Lending to Women-owned SMEs among IFC’s SSA 272 +/− 5.9% Financial Markets’ Clients SA 359 +/− 5.2% The portfolio sampling showed the following percent- MENA 388 +/− 4.9% ages of number of outstanding loans issued to women- Total Sample 2,269 +/− 2.5% owned SMEs by region (Figure 1, next page). 1 Portfolio extrapolation using the regional reach data and Figure 1: The shares of loans to women-owned baseline estimates resulted in the following estimates of SMEs vary significantly by region and indicate number of loans issued to women-owned SMEs (Table 2). an overall low level of women ownership and access to finance. The extrapolation shows that in CY11 the loan port- folios of IFC’s FM portfolio clients had an estimated East Asia & Pacific 654,303 loans, which could range anywhere between 26.6% 493,000-820,000, taking into consideration the sam- Latin America & Caribbean pling error. Region-wise, it is estimated that most of the 22.2% women-owned SMEs were reached through IFC clients Europe & Central Asia in East Asia, Latin America and the Caribbean, and Eu- 18.1% rope and Central Asia. The least women-owned enter- Sub-Saharan Africa prises were reached in Middle East and North Africa and 15.1% Sub-Saharan Africa. South Asia had a moderate number South Asia of women-owned SMEs in their portfolios. 9.5% Middle East & North Africa IFC’s Definition of Women-Owned SMEs 5.7% IFC has adopted the following women-owned enter- Total Portfolio Sample prise definition: a woman-owned enterprise has either: 16.4% (a) ≥51.0 percent ownership/stake held by a woman/ women; or (b) ≥20.0 percent ownership/stake held by 0 5 10 15 20 25 30 a woman/women AND ≥1 woman as CEO/COO (Presi- Percent of Loans to Women-Owned SMEs dent/Vice-President) as well as ≥30.0 percent of the board of directors being women where a board exists. Utilizing the available gender-disaggregated data points The obtained gender baseline allows for the extrapola- from the survey, the closest definition (“proxy”) to tion of the absolute number of loans issued to women- IFC’s adopted definition of women-owned enterprises owned SMEs by IFC client banks based on SME “reach” is “enterprises with either (a) ≥51.0 percent owned data, or the information collected by IFC from its FM by a woman/women; or (b) ≥26.0 percent owned by portfolio clients on their lending activities every year. a woman/women AND ≥1 woman as CEO/COO (Presi- This reach data is reported based on IFC’s MSME loan dent/Vice-President).” This definition is more conserva- size proxies, and this makes it fully comparable to the tive and quite close to the current IFC definition, and sampling results from the Gender Baseline Survey. therefore was used as a proxy for it. For the purpose of this extrapolation, the baseline for Gender Baseline and Extrapolation SME loan size proxy for women-owned enterprises for each region was applied to the total SME loans reported Based on IFC’s Definition of Women- by IFC FM portfolio clients in CY11 (FY12) for the respec- Owned SMEs tive region, taking into consideration the ranges based on Figure 2 (next page) presents the gender baseline by re- confidence interval (Table 1). In CY11, IFC’s FM portfolio gion obtained from the portfolio sampling results using clients reported that they issued 3.3 million SME loans. the IFC women-owned SME definition proxy. Table 2: About 650,000 loans were outstanding to women-owned SMEs out of total 3.3 million loans in the portfolio of IFC’s FM clients in the end of 2011. REGION GENDER BASELINE (% OF SME LOANS NUMBER OF LOANS TO WOMEN-OWNED (10K–$1 OR $2M) TO WOMEN-OWNED FIRMS) SMES IN CY11 (PLUS RANGE OF ESTIMATE) East Asia 26.6% (Range: 21.3–31.9%) 270,235 (216,391–324,079) Latin America and 22.2 %(Range: 17.6–26.8%) 164,090 (130,089–198,091) the Caribbean Europe & Central Asia 18.1 %(Range: 13.6–22.6%) 157,879 (118,627–197,131) Sub-Saharan Africa 15.1 %(Range: 9.2–21.0%) 8,567 (5,219–11 ,914) South Asia 9.5 %(Range: 4.3–14.7%) 47,520 (21,509–73,531) Middle East & North 5.7 %(Range: 0.8–10.6%) 6,012 (844–11,180) Africa Global 16.4% (Range: 13.9–18.9%) 654,303 (492,680–815,925) 2 The gender baseline based on the IFC’s women-owned Figure 2: If firms with 25–50% women ownership SME definition led to an increase in the share of loans and women in key decision making roles are provided to women-owned SMEs. This increase varies taken into consideration as well, the regional from 3.8 percent to 0.6 percent. The most notable in- trends stay the same with insignificant increases. crease was observed in Latin America and the Carib- bean (+3.8 percent), followed by Europe and Central East Asia & Pacific Asia (+2.8 percent). The baseline estimate increased by 28.1% 1.8 percent in Middle East and North Africa and by 1.5 Latin America & Caribbean percent in East Asia. A marginal increase was seen in 26.0% the estimates for Sub-Saharan Africa (+1.1 percent) and Europe & Central Asia South Asia (+0.6 percent). 20.9% The extrapolation based on the above definition esti- Sub-Saharan Africa mates that IFC’s reach to women-owned enterprises 16.2% was about 730,000 in CY11. South Asia 10.0% Conclusion Middle East & North Africa The survey shows that access to finance for women- 7.5% owned SMEs varies significantly from region to region, Total Portfolio Sample indicating overall low women’s ownership of SMEs 18.5% around the world based on two presented definitions. The survey allowed the IFC to establish a valuable gen- 0 5 10 15 20 25 30 der baseline, which was previously available neither Percent of Loans to Women-Owned SMEs to the IFC nor to its client banks. The differences in women’s ownership between the two definitions—one based on ownership only and one based on ownership as well as target setting for increased support of women and control—are small, so relatively little was gained by entrepreneurs. The gender baseline is also suitable for ex- using the more expansive definition at this time. This trapolating the number of women-owned SMEs reached may change over time, however, as more women par- by IFC FM clients on an annual basis. Given the wide ticipate in firm ownership and decision-making. regional variations it is recommended that each region The obtained results can be used to better focus IFC’s should be viewed separately while developing programs offerings in the area of supporting women-owned SMEs targeted at supporting women-owned SMEs. 1 IFC annually collects information about the loans provided by IFC-funded financial institutions, with special focus on MSME loans (also known as “IFC’s MSME reach”). 2 In some cases the SME portfolio did not contain any or enough loans in the “micro” category (for the purposes of this survey loans from $1K-10K), so the sampling size was smaller. 3 Banks that had any definition for women-owned firms usually defined them as firms with 51%+ women’s ownership. 4 The $2 million cut-off is used for advanced emerging markets 5 As a part of this survey, the accuracy of the IFC’s SME loan size proxy for IFC’s Financial Markets clients was verified, and it showed that the SME loan size proxy is 80.4% accurate at identifying the underlying SME enterprises according to the IFC’s MSME definition. 6 Currently, IFC defines women-owned enterprises as a firm with (a) ≥51.0 percent ownership/stake by a woman/women; or (b) ≥20.0 percent owned by a woman/women AND ≥1 woman as CEO/COO (President/Vice-President) as well as ≥30.0 percent of the board of directors being women where a board exists. Author: Alla Khodakivska, Strategy Officer, Global Financial Markets Department The author gratefully acknowledges guidance from Roland Michelitsch, Chief Evaluation Officer, Development Impact Department Sponsors: gender equality as smart economics A World Bank Group Gender Action Plan 3