Although women entrepreneurs have consistently proven to be good credit risks (as a result of good repayment histories), limited access to credit for both new and growing women-owned firms is confirmed by researchers and key informants as a major constraint. Two-thirds of women entrepreneurs in the ILO (2003) study used their own savings to start their businesses, followed by assistance from their spouse (32.8 per cent), credit from family and friends (21.1 per cent), credit from a micro-finance institution (8.6 per cent), credit from a bank (3.9 per cent) and credit from a moneylender (0.8 per cent).
As their businesses grew, they depended even more on their own savings (78.0 per cent), as well as micro-finance credit (25.0 per cent) and bank credit (10.2 per cent), and less on money from their spouses (1.6 per cent), and family and friends (12.5 per cent).
Only half of the women who applied for bank credit were successful (ILO, 2003).
The most commonly cited problems were cumbersome procedures, high interest rates and the requirement for 125 per cent loan collateral. Since Tanzanian women are often denied control over property, either because of property laws or traditional customs, they are unable to meet these collateral requirements. In addition, the women entrepreneurs in the ILO (2003) study felt that bank officers did not take them seriously, doubting whether they would repay the loan. Their success rate in obtaining credit from an MFI was 75 per cent, but in some cases the micro loan ceiling was too low to be of much value. Interest rates are variable and often go higher than 30 per cent. Factors such as these are detrimental to the start-up and growth of women-owned firms.
Consequently, women start businesses with the money they are able to put together from their own savings and personal networks. This affects their capacity to start businesses of any magnitude, and hampers their ability to grow quickly, if at all. Key informants all stressed the importance of introducing a loan guarantee programme for women entrepreneurs in order to help overcome their lack of collateral security.
Another constraint to women’s access to credit is the low level of awareness of financing amongst women in the MSE sector. Key informants stressed the need for training women micro-enterprisers on dealing with financial institutions and preparing and presenting a loan application, and for linking credit with business development support.
To learn more about this author, visit International Labour Organization's Website.
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