Gender-Based Financial Exclusion in Central Asia

> Posted by Daniel Balson, Lead Specialist for Eurasia and MENA, the Smart Campaign

Outside the Tosh Hovli Stone Palace of Khiva, an Uzbek lady practices her craft, knitting.

At the Center for Financial Inclusion (CFI), we spend a lot of time thinking of ways economically marginalized people can gain access to the capital they need to lift themselves out of poverty. Through our work, we’ve repeatedly seen that, while talent is universal, opportunity is not. Large swathes of the population across the developing world have limited access to the formal financial system and are stuck managing money in ways that are often inconvenient, inefficient, and sometimes even involve humiliation and abuse.

Focusing on places where economically vulnerable people are at risk, however instructive, risks obscuring the fact that great divides exist across gender in many diverse geographies. In developed countries as in the developing nations, women lag behind men in indicators that measure entrepreneurship and economic empowerment. Their societies are poorer for it. In the U.K., women-led businesses are far less likely to secure financing; 91 percent of investment was directed to companies without even one female founder. In the U.S., women make up half the labor force but own just a third of all companies.

The reasons for these discrepancies are myriad. Women are often shut out of informal “old-boy networks” where entrepreneurs can find critical funding, support, and advice. Women are less likely than men to have experienced role models who understand their challenges. Starting a business is a lonely endeavor and the absence of a mentor can make it even lonelier. As amply demonstrated by recent scandals in Silicon Valley, including at the ride-sharing app Uber and venture capital fund 500 Start-ups, plain sexism and discrimination play a role as well. A 2016 survey that polled over 34,000 people found that women who angled for a promotion were 30 percent more likely to be labeled as “bossy,” “intimidating,” and “aggressive” as their male counterparts.

Across many countries where CFI works, women entrepreneurs must contend with these challenges as well as numerous others. Central Asia offers an instructive example. The region is steeped in a Soviet-era mythos of gender equality, where women are portrayed as having thrown off the veil and grabbed the factory lathe. The reality is quite different.

Throughout Central Asia, millions of men leave their families to search for economic opportunities abroad. In 2016, some 2 million Uzbek men, representing almost 13 percent of the country’s entire male population, were working in Russia. As a result, millions of women are left to raise children themselves while working to supplement meager remittances. Central Asian families are large and close knit, with Kyrgyz and Tajik women giving birth to more than three children on average. Younger women are also expected to care for elderly family members as they near the end of their lives. With no men to assist them, caregiving responsibilities add up quickly and women have little time and money to dedicate to entrepreneurship.

The women who manage to start a business of their own will face serious obstacles. Investors working in the region have told CFI that financial institutions often view female borrowers as riskier and less loyal clients than their male counterparts. Women face a higher rate of loan rejection though women generate a similar level of profit per unit of revenue as men. Regional participants in the financial inclusion sector observe that, when data is held constant for capital and sector, there is no evidence that women-run businesses are less successful or that they generate a smaller return.

Female borrowers who are able to secure a loan face a very firm and very low glass ceiling; women borrow more often than men but at lower levels and thus face substantial difficulty evolving their small businesses to SME-level enterprises. While a bakery run by a man may soon grow to a catering company or a restaurant, women-owned shops will frequently remain small-scale sole proprietorships.

The difficulty Central Asian businesswomen have in reaching scale may be partially explained by how their household obligations incentivize a certain type of borrowing and spending. In October 2016, CFI research fellow Christy Stickney, developed a report entitled, Emerging SMEs: Secrets to Growth from Micro to Small Enterprise. The report used qualitative research to identify and analyze Latin American clients whose borrowing had increased significantly over time. Unlike their Central Asian counterparts, the women covered in Stickney’s report had no difficulty accessing credit and did not report facing discrimination from loan officers. Nonetheless, the report found that, like women in Central Asian, Latin American women do not feature prominently as lead owners or owner-managers of higher growth businesses. The reason for this seems to be that women’s investment strategies are more diverse than men. So, while women covered in the report actually tended to borrow more than men, they did so to invest in education opportunities for their children, support their elderly in-laws, and repair their homes rather than pour their capital into a single high-growth business model.

Family dynamics hinder female entrepreneurship in other ways. Most Central Asian financial institutions only accept fixed assets as collateral and, because such assets are registered only in the husband’s name, women are unable to secure collateralized debt while their husbands work abroad. In recent years, many men have returned home, pushed by Russia’s tightening immigration policies, collapsing ruble and softening economy. Yet their repatriation does little to liberate their wives’ entrepreneurial ambitions. One representative of a multilateral institution, who requested anonymity in order to speak frankly about the region’s challenges, told CFI that returning remittance men often fund their own businesses by cannibalizing credit originally allotted to their spouse.

Gender-based discrimination results not only in denial of financing but often in denial of land rights and decision-making authority over its use. In rural Central Asia, where agriculture remains the primary economic activity, local farming collectives are chiefly responsible for allocating land plots and determining how they will be used. Women are frequently denied decision-making roles on these bodies and often lack the mechanisms necessary to make their voices, and their ideas, heard.

While these challenges are substantial, they are hardly insurmountable. In the second part of this series, we’ll consider how some programs are unleashing Central Asian women’s entrepreneurial spirit. We’ll look at how investors, financial institutions, government authorities, and other stakeholders can ensure that women receive equal access to capital and make capital markets work for them and their businesses. We’ll also explore steps financial service providers and regulators can take to ensure that women entering into the formal economy for the first time have their rights protected. Finally, we’ll consider whether any of these innovative strategies can offer insights on how best to address gender disparities in the U.S.

Image credit: Brigitte Brefort / The World Bank

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