How to bring banking to one billion women: interview with Mayra Buvinic, senior fellow at CGD

9th July 2018 Jack Aldane

Mayra Buvinic, senior fellow at the Center for Global Development (CGD) and former director for gender and development at the World Bank, spoke to Jack Aldane about her latest research, which underscores what lies in the way of female economic empowerment and what needs to change if the next billion women worldwide are to get access to finance. 

The development financial institutions (DFIs) of the G7 have pledged US$3 billion in investments towards female economic empowerment. Where should that investment go from what you’ve gathered in recent research?

Financial constraints constrain all entrepreneurs, but women are more affected by not having access to finance, and to formal finance in particular. Whatever mechanisms to fund women become available now, I think it’s going to be a matter of how you programme those funds and what kinds of institutions are going to be used to channel those funds. The World Bank now has its We-Fi initiative, which targets small and medium-sized enterprises, but the majority of women are still micro. As micro entrepreneurs, they have benefitted from microfinance, but not from the formal sector. These funds from the G7 DFIs should be structured in such a way that they get to women-owned microfinance firms. That’s a bit more difficult, so I’m not sure that that is going to happen.

You recently released a new set of results from randomised control tests carried out in Indonesia on female entrepreneurship. What did you find?

In our baseline data on Indonesia, we have a random sample of female and male entrepreneurs. That is very unusual, because you almost never have random samples of entrepreneurs that you can compare. The differences in earnings are dramatic. Men earn twice as much as women as entrepreneurs but the bigger issue is that more than half of small-and medium-sized enterprises in Indonesia are women-owned. So here you have a huge number of enterprises—around 30 million or so—owned by women, and these are all at a rock-bottom level—really micro. For sustainable growth in Indonesia, you want to move these businesses up. We also found out that when we matched characteristics of male and female entrepreneurs, controlling for everything from cognitive ability and risk-taking tendencies, to education, age and marital status, differences in earnings only fell by 30 percent. That leaves a remaining unexplained 70 percent difference. So there is clearly discrimination in the business sector.

Let’s talk about the lack of data, which, as you point out in your recent report on savings, means there are still simply too few financial products available to women in developing countries.

Banks don’t disaggregate their data for sex differences. Only one country’s banks do, and that’s Chile. The Chilean government asked its country’s institutions to disaggregate their budgets by sex, because they had a gender-based policy and wanted to track their performance. The financial regulator started asking banks to do the same. This started in 2002. Now in 2018, we have more than 14 years of data. The data separates borrowers by sex and then also savings accounts by sex. What this shows is that, while men are and always have been the main borrowers among bank clients, women are the main savers. The value of savings accounts belonging to women now exceed those of men by around 35 percent. In terms of volume of savings, women have consistently had the same amount of savings as men. Banks in Chile realised this and started creating products which are more suitable to women, until they realised they were also charging higher interest rates to women. Now they are starting to correct that. While banks in Chile continue to disaggregate their data, very few do in other countries. I was in the Netherlands recently and Dutch banks don’t do this either. Dutch female entrepreneurs are complaining that they too are getting charged higher interest rates than men. A recent study in Italy found the same thing. I think banks have unintentionally discriminated against female clients, thinking that their services are gender neutral, when they are not.

Given that this appears to be a global phenomenon, might this treatment be at least partly conscious? Could banks perceive female clients to be less resistant to higher interest rates?

I think it’s because they don’t see women as economic actors, or as good investments. On the other hand, women own half the enterprises in Indonesia. Right now, there are about 1.6 billion people in the world who are unbanked. About a billion of those people are women. You have a huge market out there ready to be invested in. Another thing they found in Chile, of course, is that women repay loans better than men. But it is true also that men take higher-risk loans.

So how are the next billion of unbanked women to be brought on board if it’s not as straightforward as creating more products for women at fair interest rates?

First, it’s about realising that your client base is not homogenous. You have to look at each client and ask what she wants. Once you have the data, you can use this to develop the right products. Why do women save more, for instance? Some studies say it isn’t because women are more risk-averse than men but because they have a broader range of risks to manage, including children. Saving is a response to the risk of an emergency. Given that, you can design products to fit those characteristics. Bank agents may unintentionally and unconsciously discriminate against women, so in Indonesia, we’re giving monetary incentives to agents and telling them it’s important to target women. Once you sign a new customer for a savings account, one set of agents gets 2,000 Rupiah, another set gets 10,000 Rupiah. We’ve yet to see all the results, but women with mobile accounts where agents have the right training make more decisions in the home and report that they are more empowered. If you’re being serviced by a high-quality agent, that makes a difference.

How do you consider the overriding challenge here, which is to foster single-mindedness among women who have entrepreneurial potential, while allowing them to maximise their natural strengths in looking out for the collective around them?

You have to stimulate self-reliance and economic independence. I believe that’s what women want, but that so many are faced with all these social pressures. I think it’s about nudging women, gradually. Privacy of individual accounts, particularly mobile accounts, is important, because it reduces transaction costs. I think it’s about helping each woman become the individual entrepreneur she has always wanted to be. Private accounts have been really impactful here because if a woman is pressured to give away assets, it probably makes more sense to give a woman a cow than it does to give her cash. At least she can’t easily give away a piece of the animal to a relative. The big issue for us over the years has been that all the development programmes to empower women economically have focused on women but not the business environment. That’s where I think the returns may be a lot bigger. It’s less costly if you start off with the right product and without unconscious biases.

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