Written by: Hannah M. Lewis - Communications & Research Advisor, Global Success Fund ("GSF")
Edited by: Kim Kastorff - CEO/Founder of Kimpacto & Global Success Fund ("GSF")
Imagine a hectic, open-air market in Bogotá. As you walk past stalls piled high with fresh fruits and vegetables, clothing, and non-perishable goods, you hear the shouts of Colombian vendors – who are almost exclusively women - offering their deals of the day (translated):
Two kilos of apples for 2,500 pesos!” “Three dozen eggs for 10,000 pesos!
This Colombian market is a reflection of current economic trends in Latin America, where over half the women of working age - totaling over 100 million – are now in the labor force. And many of these women are entrepreneurs - according to a report by the IFC, women own 39 percent of all formal small and medium-sized enterprises (SMEs) in Latin America.
At the same time, compared with other world regions, Latin America has the largest credit gap in regards to women-owned SMEs. Although women own 39 percent of SMEs in Latin America, they receive only 22 percent of loans. Perhaps not surprisingly, the IFC found that formal SMEs in Latin America with at least one female owner are more likely to report access to finance as a major barrier for their business.
Yet, as noted in the report by the IFC examining women-led SMEs around the globe, “the characteristics of women-owned SMEs…suggest that these are well performing yet overlooked clients, representing a market opportunity for financial institutions.” In short, these women-led enterprises are often an excellent bet for banks and investors. Additionally, supporting women-led companies leads to positive social impacts for women, their families, and the world (as you can read about in my previous blog posts).
Recognizing this market opportunity, as well as the chance to leverage the positive social impact that comes with supporting women-led SMEs, some organizations are taking innovative approaches to closing the credit gap for women-led enterprises in Latin America. Here are just a few of them:
Global Success Fund (“GSF”)’s Pay-For-Success Impact Investment Fund – GSF has created the first Pay-for-Success Impact Investment vehicle, leveraging partnerships and technology to provide low-cost capital and support networks to help women build successful social businesses. GSF’s first fund, called GSF-Latina, supports SMEs led by Latina women by offering low-cost loans and support networks while at the same time incentivizing women-led businesses to achieve social impact goals.
Variable Payment Obligation (VPO) Program - The VPO program is a new pilot project funded by USAID and the Argidius Foundation and implemented by Agora Partnerships, Banco de America Central, Enclude, and the Miller Center at Santa Clara University. Many SMEs in Latin America lack collateral and, therefore, cannot leverage it to get traditional loans. The VPO program offers a loan product customized to the needs of women-led SMEs, as its loan structure depends on cash flow rather than collateral. The VPO program aims to increase access to capital for SMEs, de-risk them for future loans and investment, and provide supplemental training to ensure these companies find success.
International Finance Corporation (IFC)’s Social Bond Program – Although not exclusively focused on women-led SMEs in Latin America, IFC’s Social Bond Program recently raised $500 million to invest in women-led SMEs and low-income communities in emerging markets. IFC intends to use a significant portion of the capital from this three-year bond to help financial institutions profitably finance and support women-led businesses. Past IFC bond programs focused on supporting women-led SMEs have had a baseline impact of providing 61,455 loans outstanding to women-led businesses (with a target goal of 109,798 loans by 2018-2020).
All of these innovative approaches are providing much-needed access to capital for women business owners – including perhaps some of those female entrepreneurs selling goods at my open-air market in Colombia – and allowing them to receive the critical financing and support they need to sustain and grow their businesses.... plus empowering women to become the social agents of change for their communities.
Kim Kastorff has 15+ years of international finance experience and two Masters degrees - MBA and a Masters of Research in Impact Investing. My goal is to promote impact investing and financial inclusion as we collectively strive for a more educated and financially sustainable global economy.