by Lionesses of Africa Operations Department
It was without doubt one of our finest moments, persuading Melanie to give us the time off, and on behalf of the greater Lioness community we headed off into southern Italy for a road trip. Stopping off in many restaurants (all in the name of research, of course) we drove around the beautiful countryside allowing us a deep look into a part of Italy often missed by the tourist books. Covered as it is in breathtaking views, steeped in culture and of course, amazing produce from the land, it is an area of the world well worth a visit. What we also noticed sadly was the slow death of hilltop towns as the youth vote with their feet, and head to the big cities in the North to search for the roads ‘paved with gold’ and of course meaningful jobs.
All governments grapple with this issue. Happily we have seen some forward thinking governments move more towards a possible solution through a deeper understanding of what we have seen across Africa and throughout our truly inspirational membership since Melanie founded Lionesses of Africa. A possible solution, namely what all of these emptying towns lack, yet our membership has and creates daily, is that of COMMUNITY.
Communities are not built around jobs, they are built around meaningful jobs, which come about from training, respect from management and a potential for growth, both company growth and also personal growth, which in turn spreads across the neighbourhood, building further. This is what we see across our membership, where employment is celebrated, where communities are embraced and neighbourhoods are organically grown as if through osmosis.
It is easy to say that women create and invest more in their communities, it is quite another for a deep investigation to be done, and for it to be shown in an academic way following well recognised practices. It was therefore great to see that the European Investment Bank has done just that.
Following on from the 2022 report ‘Support for female entrepreneurs: Survey evidence for why it makes sense’ by Pal, Rückert and Wruuck (here), which shows that: “… supporting female entrepreneurs helps to mitigate gender employment gaps and generates wider societal benefits. Notably, female-led firms achieve higher environmental, social and governance scores and support the upskilling of their employees through investment in training.” They have this year released a report which brings this together with finance entitled: ‘Finance in Africa: Uncertain times, resilient banks: African finance at a crossroads.’ (here) which approaches this issue head-on. In a large survey from 2016 to 2022 across 19 sub-saharan countries they have confirmed much of what we have seen and have been saying for sometime.
“Better-managed enterprises are more likely to be led by women.”
“Female-led firms are more likely to invest in innovation…export goods and services…and offer training to their employees…”
“More female-led firms offer formal training programmes to employees than male-led firms across all regions in sub-Saharan Africa…[This] is pronounced, especially in West Africa and Central Africa.”
“Better-managed enterprises are more likely to be led by women…female-led firms are more likely to have established a set of sound management practices, such as setting performance indicators and monitoring them…employees in female-led firms have higher engagement with the company, are more positive about their firm’s strategy and mission and tend to be more satisfied with their jobs (Castrillon, 2019).”
“…female-led firms in sub-Saharan Africa employ more women. The share of women in the workforce in female-led firms is 41%, compared to 23% in male-led firms, which demonstrates that female leadership is good for female employment.”
It would therefore appear that if we are serious about building communities we must invest in women led businesses, yet this is not happening. As Melanie wrote in one of her more recent GML blogs: “When I talk to our Lionesses of Africa community members around the continent, there are three key concerns that give women entrepreneurs sleepless nights. Firstly, there’s the common challenge of getting much-needed funding and access to capital - it often tops the list of worries. Not surprising when you consider that the dial is barely moving when it comes to solving the gender finance gap, both globally and on the African continent in particular. Securing investment is still a major challenge for woman entrepreneurs, both in growth mode and in start-up phase….” (here).
So finance is no.1 and we were very excited to see that the EIB had found that: “65% of banks have a gender strategy in place, with another 19% planning to introduce one.”
Fabulous - but what does this mean in practice? We have written many times about our recognition that banks’ risk and credit committees do not recognize real world baked-in imbalances. Equality does not work when as a gender collectively one has not had the law on one’s side, as The World Bank state in their report ‘Women, Business and the Law 2023’ (here) many countries don’t even allow (or haven’t allowed previously) women to own property or land. How does one gain enough wealth to be able to provide for the average of 211% collateral required for loans across Africa if ownership is new? Own property and inherit is the way it is mainly done across the globe, so it was not a surprise when we saw that in spite of the large amount of banks now with a gender strategy, lending was still stuck in the mud for women’s businesses.
“The distribution of loans is still notably skewed in favour of male borrowers. In lending to [SMEs], almost 70% of banks reported that less than 30% of their lending was to female borrowers…50% of banks cite a lack of acceptable collateral as a major constraint…”
“Morning Madam, do you have Collateral?”
“…er, No.”
“NEXT!"
So are we just looking at this the wrong way?
Banks will argue that their risk and credit committees are not there to solve real world baked-in imbalances, they are not a charity, indeed they are there to create a meaningful and decent return for their shareholders, whilst ensuring (as the regulators push constantly) that the bank remains safe, that there is no risk of financing terrorists or other dodginess, and to ensure that all within the bank know that to step out of line will bring the wrath of all governments onto their heads with (as we have seen) massive fines. Hence the oft talked about risk premium for Africa that not only increases interest rates (and collateral), but removes a number of nervous players from the continent, which in turn increases the pricing and collateral needs further. What should we expect? QED.
So why have a ‘Gender Strategy’, there must be more to this. “79% of [the banks say] the most important reason is to achieve desirable social outcomes.” - Ok, so they are a charity - has anyone told the Risk and Credit Committees, or for that matter, the Shareholders?
But what the EIB show clearly is that this does not need to be a social play, a warm and fuzzy feeling every time one finances a woman. Women are great business for banks, in fact better than male-led! (Also confirmed in other various studies (here).
Much of financing during and after Covid went to male businesses (possibly to prop up current borrowers?) - “Female-led companies were…more likely (90% probability) to suffer a drop in liquidity than their male-led peers (86%)”, which is probably why "The likelihood of female-led firms experiencing sales losses [during 2020] was 3% higher than for male-led firms.” But “Businesses led by women were just as resilient as male-led firms after the pandemic…by bankruptcy rates and permanent closures.” Indeed “Banks continue to observe better asset quality on female lending. Just over half of the banks in the sample report that women have lower non-performing loan rates than men, while another 30% report no difference.”
Perhaps that was because of government help during this time was directed to women led businesses? - Er…no: “…the average probability of receiving or expecting government assistance after COVID-19 for both female and male-led businesses was only around 2%.”
[As an aside, we hate being proved right when it comes to finance for women, but at the very start of Covid we wrote to our membership pleading to them to protect cash not least because they will not be able to rely on government support. 2% - Even worse than we imagined - we quoted Ronald Reagan at the time, see here.]
So male companies got greater support yet were no better at staying afloat - indeed slightly worse…and still banks with their ‘Gender Strategy’ financed male businesses more. Go Figure!
How do female-led companies do so well? The EIB offers us an answer: “Female-led firms…invest in innovation, export goods and services and offer training to their employees…These results confirm the benefits of female leadership and gender inclusion in the workforce for business performance.” This is also central to the building of meaningful jobs, which in turn builds our word of the week - Community…
For many Italian hilltop towns it maybe too late, but it is not too late for Africa. The world needs Africa to be successful, to be the powerhouse it deserves - for this finance must be driven aggressively towards women led businesses. Is it not time for banks’ shareholders to stop asking if their ESG box has been ticked - but instead ask why they are missing great financing opportunities? Is it not time for bankers to find their inner Milton Friedman and go back to basics - finance businesses that are great businesses and then sit back and celebrate the lower NPL ratios?
The last of the three concerns Melanie found in her discussions with the membership was “…breaking through gender barriers and battling stereotypes.” Great results in Africa do not start with ticking the Gender Strategy’ box, they begin by redesigning the risk and credit committees to recognize the opportunity cost to the bottom line of missing out on creating a portfolio of good, well structured, well run businesses with low NPLs.
Then at last there will be no gender box to tick, just good businesses for the banks and great communities for the world, as the EIB say: “Failing to fully leverage women’s entrepreneurial potential comes at an economic and social cost. It means lost opportunities for boosting employment, [for] promoting more balanced economic development and [for] reducing poverty risks across the European Union and globally.”
Concentrates the mind, doesn’t it.
Stay safe.