The $1.5 trillion opportunity: Closing the credit gap for women entrepreneurs

Sharmila Raj Jain (center), founder of PD Fluted Cartons.
Courtesy of The Goldman Sachs Foundation

The credit gap faced by women-owned small- and medium-sized enterprises (SMEs) worldwide is a shocking $1.5 trillion. Working to close this gender investment gap is not only the right thing to do, it’s the smart thing to do: it is economic growth left on the table.

Since 2014, Goldman Sachs has helped to reduce this gap by mobilizing $2.8 billion in capital through the Women Entrepreneurs Opportunity Facility, a finance facility created by our women’s entrepreneurship program—Goldman Sachs 10,000 Women—and the International Finance Corporation.

If there’s one thing we’ve learned, it’s that our efforts alone won’t be enough. We’re proud of our work, which has empowered more than 164,000 women entrepreneurs across 55 countries. But we know that much, much more must be done to close this gap once and for all.

Women face far too many challenges in getting access to capital. Yet research demonstrates that when you invest in women around the globe, they create jobs, stabilize economies, and strengthen overall society. That is a tremendous opportunity—a $1.5 trillion opportunity.

So why does this enormous gender investment gap persist?

The challenge is generations old and multifaceted. We’ve seen in our work with the International Finance Corporation that banking products are not designed with women in mind: many women, especially those in developing countries, don’t have the collateral they need to take out a loan. Most lenders require a fixed asset—a land title or a property deed—which many women struggle with, as oftentimes such assets are held in their male relatives’ names. Consider this: women only own approximately 1% of registered land titles.

When these structural issues are combined with perception biases, the challenge is compounded. Take, for example, Sharmila Raj Jain, an Indian entrepreneur who is the founder of PD Fluted Cartons, a manufacturer of printed laminated packaging.  As Sharmila has recounted, early in her career she applied to take out a loan so she could buy land for her business, but the bank refused, saying she needed land first as collateral.  One particular bank manager said he was happy to offer her tea, but not the loan she needed. After being rejected numerous times, Sharmila updated her business card to include her business education studies with Goldman Sachs 10,000 Women. It was this credentialing which caught the attention of the bank managers who then had much more confidence in her ability to repay the loan, and her application was accepted.

Another reason for the massive credit gap is that women entrepreneurs are often seen as a risky investment—or are prohibited from even getting the chance to get started. Shockingly, more than 100 countries still have legal barriers to women’s entrepreneurship, including laws forbidding women from signing contracts, registering their business, or opening bank accounts. Gender-based credit scoring and investors’ cultural biases are also common roadblocks.

The benefits of investing in women entrepreneurs go far beyond their small businesses: research shows that women entrepreneurs are more likely than men to reinvest their savings in health and education for families; job creation; and new products and services for communities, resulting in huge growth for local economies.

The issue is clear, and so is the solution: more capital needs to get into the hands of women entrepreneurs to drive economic growth. Through the Women Entrepreneurs Opportunity Facility, we have increased the volume of outstanding women-led SME loans by $4.5 billion cumulatively. But in isolation, this won’t close the gender investment gap.

Enacting change of this magnitude requires cross-sector collaboration. Corporations, financial institutions, policymakers, legislators, investors must all come together in partnership because the numbers clearly show that more needs to be done. This is just the foot of the mountain.

As we look ahead, our focus at Goldman Sachs is not only to continue to finance women SMEs in emerging markets through the Women Entrepreneurs Opportunity Facility, but also to continue to bring about a change in attitude and approach toward lending to women globally.  We want to amplify voices like Sharmila’s, as we work to spread the ripple effect women entrepreneurs have on their community and the economy. We want to mainstream lending to women-owned businesses, de-risk women as borrowers, and dismiss the stereotypes that somehow still exist about what an entrepreneur looks like.

We want to close the gender investment gap once and for all. And it starts with telling their story—not only during Women’s History Month, but every single day of the year.

Asahi Pompey is global head of corporate engagement and president of the Goldman Sachs Foundation. The Goldman Sachs Foundation is a partner of Fortune’s Most Powerful Women Summit.

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