8mins read
Published on: Aug 8, 2024
#Financial Markets
#Crypto 360
Traditional financial institutions have so far hesitated to support women-led ventures, but innovative fintech platforms have stepped in to mark a new era.
Key Takeaways
• Women entrepreneurs have led some very successful business ventures and immensely contributed to the global economy over the years.
• However, financial institutions even today hesitate to support women-led ventures due to several biases.
• As per a report, startups led by women entrepreneurs receive less than 3% of all venture capital investments.
• Of late, we have seen some innovative fintech solutions emerge that support businesses led by women entrepreneurs.
Entrepreneurship can be defined as any attempt at a new business that creates value for the venture, provides employment to individuals, and contributes to the economy. It is crucial for the growth and development of a country for entrepreneurs to lead its business ecosystem.
Women entrepreneurs have led some very successful ventures and made an immense contribution to the world’s economy. However, they often find it difficult to get funding for their projects even today. Financial institutions hesitate to support women-led ventures due to a number of biases.
However, financial technology (fintech) has recently stepped in with several innovative solutions and services so that women entrepreneurs can run and lead businesses and contribute to the growth of our economy.
In this blog, we will look at the role of fintech in spurring the participation of women entrepreneurs across the world.
As pe a Harvard Business Review report, startups led by women entrepreneurs receive less than 3% of all venture capital investments. It can even be explained with the fact that women accounted for less than 15% of all cheque writers. If more women join VC boards, there is a possibility of more women entrepreneurs securing funding for their ventures. The main challenges faced by women entrepreneurs are:
• Lack of collateral
• Small credit score
• Lack of experience
• Lack of networking and mentorship
• Tough negotiation terms
Financial institutions don’t easily support businesses led by women entrepreneurs. Though we have seen some progress on this front, the development is rather slow.
To address these challenges, some fintech solutions have emerged of late which support business ventures led by women entrepreneurs.
A child of the 1990s, fintech began with the arrival of internet banking and electronic payment systems. The last decade has seen fintech adopt emerging technologies such as artificial intelligence (AI), machine learning (ML), large language models (LLMs), blockchain and peer-to-peer (P2P) lending.
Fintech is much appreciated for financial inclusion as it can be accessed even by marginalised communities, including women. Fintech enables women to access the financial and technological tools required to make a mark in the world of business. Fintech has empowered women entrepreneurs across countries to lead businesses successfully. Earlier, constraints such as the distance to the nearest financial institutions, lack of documents to access facilities, and other social and cultural factors stopped women from taking the lead.
The financial access provided by fintech led to more women leading from the front across industries. However, much more needs to be done to encourage women entrepreneurs so gender gap continues to be wide in leadership positions in the world of business. These fintech platforms offer inclusive services so that women can access capital and other necessary financial tools. These burgeoning fintech solutions have made securing funding, loans, and investments much easier for women, thanks to the inclusive approach of such solutions.
These services align credit score systems in line with the aspirations of women entrepreneurs. Alternative credit score systems, automation of loan and credit approval processes, and simplified disbursement and repayment services are some of the fintech solutions that have greatly benefitted women entrepreneurs.
Blockchain solutions, complemented with distributed ledger technology (DLT), have built robust and decentralised fintech services that create smart contracts for terms and conditions of business decisions to be automated. Innovative fintech solutions also help women entrepreneurs overcome bottlenecks in sales and delivery channels, capital lending, supply chain management, credit assessment etc.
Online marketplaces that offer customised and small loans are also being created by fintech companies that serve emerging women entrepreneurs. These loan provider facilities especially cater to small scale businesses, thereby reducing the need for a long credit history or score. Other fintech solutions focus on improving leadership and business skills of emerging businesswomen so that they can learn about export and import laws, Big Data, digital accounting etc.
Fintech makes use of internet banking and virtual wallets to offer a wide range of financial services such as loans, funds, bank accounts etc. The enhanced transparency and accessibility of fintech platforms allow a higher number of women entrepreneurs to use these tools to secure funds and further their business goals. There are enough instances which prove that if women entrepreneurs have an equal access to funds, training, and mentorship opportunities, then there is nothing that can stop them from achieving success. Let's see how fintech is empowering the participation of women entrepreneurs with its innovative solutions.
Several fintech platforms now offer alternative loan financing solutions, women entrepreneurs being prominent beneficiaries. These platforms let ventures led by women to access a wide variety of loan instruments by removing the obstacles posed by traditional financial institutions. The standards of loan terms and conditions on these innovative fintech platforms are well suited for emerging entrepreneurs with little experience.
Since women often don’t get enough opportunities, they have little to no experience in running businesses. Alternative loan financing, powered by innovative fintech solutions, thus eases the entry barrier for new entrants to the world of entrepreneurship. These solutions provide lenders with critical data required to approve business loans and help women entrepreneurs borrow funds much faster. These tools take care of all the steps of loans such as applications, processing, lending, and repaying.
Women entrepreneurs, so far being denied entry into traditional finance order, have found a sanctuary in fintech solutions. However, challenges remain. Getting enterprises led by women entrepreneurs on these fintech platforms is not an easy task in developing countries as a large number of such ventures are small and operate in an informal economy.
Besides, due to low education levels among many such women entrepreneurs, particularly from rural areas, they are often not even aware of the presence of such platforms. There is also a legitimate fear among these entrepreneurs about the nature of these platforms as several scams have taken place. The fintech industry needs to address this trust deficit and earn its space among these budding businesswomen.
The fintech industry therefore needs to expand its efforts before urban and highly developed regions and focus on disadvantaged women entrepreneurs running businesses in low-incomes regions. Forward Financing, Scratch Financial, Valon, and Coviance are some of the institutions financing fintech firms.
Recommended Read: TradFi vs. Fintech
Crowdfunding is a major segment of the fintech sector that is increasingly serving women entrepreneurs in their business journey. Entrepreneurs can pitch their business ideas on these platforms and raise funds from interested parties. Crowdfunding isn’t limited to non-profits anymore and several ventures have gained a lot from it during their business journeys.
Women often find it difficult to get themselves heard; so crowdfunding solutions, thanks to their accessibility, are a boon for them as budding businesswomen can interact with potential investors directly. With the doors of most VCs closed, several women entrepreneurs have shifted to crowdfunding platforms to secure funding.
It has been found that women typically request smaller fund amounts so that there is a higher chance to be fully funded. The benefit of crowdfunding is that it isn’t a board decision to bet on a project. Here, there are varied stakeholders who see that others supported those projects. This way, a project slowly earns trust among the potential investors so that they can assess an opportunity better and propose to support it without any gender biases.
In fact, some of these crowdfunding fintechs automate strategic investments as per the preferences of the investors. Many platforms let investors earn passive and long-term incomes based on the performance of the ventures they have invested in.
PwC, along with The Crowdfunding Centre, published a report in 2017 that claimed women entrepreneurs are more successful than men when it comes to seed crowdfunding. In fact, female-led campaigns were 32% more successful than male-led campaigns at reaching their funding target.
The trend is most apparent in the U.S. and the U.K. The success rate of women entrepreneurs in not too bad even in those countries where crowdfunding is not the most preferred option, such as China, India, Brazil, Mexico, Russia, Indonesia and Turkey. CauseEDU, Galaxy Crowdfunding, Bulkestate, LenderKit, and Immofunding are some of the leading crowdfunding fintech companies.
Whether they are developing or least developed countries, microfinance has been a bulwark of women-lead enterprises over several past decades. Microfinance institutions grant loans with low interest rates, subsidies, and other financial instruments to women entrepreneurs so that they can run and lead micro, small and medium enterprises (MSMEs) successfully.
The services offered by these fintech tools such as invoice factoring, logbook loans, bid bonds, and payment guarantees allow women entrepreneurs with low collateral to seek loans for their businesses with alternative collateral arrangements. Economic inclusion and women empowerment are the twin goals of such microfinance models which have benefitted a large number of women entrepreneurs.
In the 21st century, microfinance can be accessed via fintech platforms on your smartphones even in remote areas, making them easily accessible even for small businesses led by women. These platforms bridge the gap between the fintech industry and marginalised communities such as small-scale women entrepreneurs in rural and underserved locations through digital microfinance and internet banking.
Millions of women who couldn’t access financial and technological services earlier can apply for credit, savings accounts, insurance etc. from their smartphones. These micro, small and medium industries form the backbone of the informal sector in any national economy, but business leaders often fall prey to blood sucking lending mechanisms due to the lack of institutional support. In such circumstances, the role of fintech platforms offering microfinance facilities in crucial for the growth of women-led enterprises.
Note that fintech reduces transaction costs which are typically associated with traditional microfinance organisations with physical offices and other manual processes. Cost-saving is another incentive for women entrepreneurs from marginalised communities to access fintech microfinance platforms.
Since fintech platforms don’t require a lot of physical space and resources to operate, they can afford to offer loans at low interest rates — an even better option for women-led enterprises. These fintech platforms use Big Data to provide microfinance services to ventures led by women. Many such platforms offer digitisation services for women-led businesses, lessening their reliance on multiple tools.
If executed well, the policy can indeed empower women entrepreneurs working on a smaller scale and usher in a new era of gender equality. Another benefit of microfinance is that it helps emerging businesswomen to have a credible credit score. This way, they can secure large loans and other such financial instruments later when bigger opportunities knock on their doors.
Rufi Rural Fintech, Momentum Credit, MoneyBank, ThitsaWorks, and Sandah & Awamo are some of the leading microfinance fintech companies.
We have already mentioned the vicious cycle of a lack of representation in VC boards and businesses. Since there aren’t enough women cheque writers, women are less likely to receive funding from VCs. The fintech industry has recognised this phenomenon, and it has been quick to grab the opportunity to focus on women-centric VC fund platforms.
The fintech platforms keep a close watch on exciting start-ups led by women entrepreneurs. If a business venture is pregnant with the possibilities of growth, these women-centric VC funds are quick to provide funds, mentorship, training and networking opportunities to them.
These fintech solutions not only support potentially profitable ventures but also foster a gender-sensitive and inclusive entrepreneurial environment. Such encouraging steps by fintech solutions create an atmosphere in which women entrepreneurs not only participate in an economy but excel.
As VCs deploy an inclusive investment strategy to foster economic growth, they will need to invest in women-led businesses at both seed and series A levels. Such efforts sow the seeds of a gender-sensitive business environment where ventures led by women entrepreneurs are as encouraged as those led by men.
It is not that only women-led VC funds support women-led ventures, but a women-led project is more likely to get support from a women-led VC than from a men-led VC. Amplifyher Ventures, The Artemis Fund, Aspect Ventures, Astia, and Avestria Ventures are the leading fintech-based women-centric VC funds.
The struggle for financial inclusion is an uphill battle for women entrepreneurs as TradFi institutions cannot be accessed easily. This is where fintech is stepping in to fill the gap. Innovative fintech services can well support the growing role of women entrepreneurs in the world of business. As fintech breaks entry barriers and encourages a democratic and inclusive financial ecosystem, women tend to flock to it for the growth of their business ventures.
With more women entrepreneurs queueing up to access such innovative fintech solutions, these services are bound to see growth. There is a possibility that we might see new challenges rising before women as they get more opportunities in the world of entrepreneurship. In such circumstances, new kinds of fintech solutions might emerge that will try to address those challenges. There is a need for greater collaborations among various stakeholders such as governments, central banks, industry leaders, and fintech solutions providers so that more women entrepreneurs emerge and contribute to our economy.
No, women are far less represented as men in the world of entrepreneurship. The situation gets worse as we shift from developed to developing countries.
The main challenges faced by women entrepreneurs are:
• Lack of collateral
• Small credit score
• Lack of experience
• Lack of networking and mentorship
• Tough negotiation terms
Fintech offers a financially inclusive ecosystem that can be accessed even by marginalised communities, including women. Some of the areas in which fintech is supporting women businesswomen are funding, credit score systems, loan processes, and simplified disbursement and repayment services. Some Fintech platforms have onboarded women-led VC funds so that women-led ventures can get more opportunities to excel.
Fintech solutions that focus on loan financing, crowdfunding, and microfinance have emerged as the leading solutions that are supporting women entrepreneurs.
Fintech needs to focus on emerging challenges before women leaders in business to serve them better. Fintech and women entrepreneurs also need to collaborate with different stakeholders such as governments, central banks, and industry leaders.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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