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Fellow Exec Ed

Blog Post

Many have compared the steps required to overcome COVID-19 with those taken in previous economic crises or natural disasters, whereby the situation follows a similar pattern consisting of three stages: triage, stabilize, recover. While there is some applicability to the current COVID-19 pandemic, it implies a sequence and limited duration that may not truly characterize the nature of the challenges we now face. The reality is that COVID-19 is a more persistent phenomenon that may continue to ebb and flow for some time before it is fully under control.

Given the more entrenched and global nature of this crisis, it is likely that the consequences will be more varied and run deeper than what we have seen in past crises. To help get a sense of what these consequences may be for those who are most vulnerable, we asked a few members of CFI’s <a href="https://www.centerforfinancialinclusion.org/people/advisory-council" target="_blank" rel="noopener noreferrer">Advisory Council</a> to share some brief thoughts on what they see as the biggest implications of COVID-19 and the ways in which the inclusive finance sector can address them.
<h2>Camilla Nestor, Adjunct Professor at Columbia University</h2>
From my perspective, one of the biggest implications of COVID-19 is on food security for countries and populations that were already vulnerable. Before COVID-19, the world’s estimated 500 million smallholder farmers were one of the most financially underserved segments, with an estimated <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">$100 billion lending gap</a> in Africa alone.

As a result of COVID-19, smallholder farmers are dealing with significant volatility in demand for both cash crops and food crops, challenges securing the necessary inputs, and limits on accessing markets. On top of this, they are also facing reductions in access to already-scarce capital. If unaddressed, this lack of capital will directly impact their ability to produce food. We see that commercial lenders are pulling back on lending to agriculture; <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_Summary_FINAL.pdf" target="_blank" rel="noopener noreferrer">cross-border social lending</a> is flat; and supply chain financing is at risk – for example, in a recent <a href="https://www.afap-partnership.org/covid-19-impact-assessment-on-the-agrismes-and-farming-communities-of-ghana-malawi-mozambique-tanzania-and-uganda/" target="_blank" rel="noopener noreferrer">survey</a> of 5 markets in Africa, farmers noted reduced access to both supplier credit and trade credit since the onset of the pandemic.
<blockquote>With smallholder farming contributing up to 80% of the food supplies in some regions, there is significant risk to food security at both a household level and a national level.</blockquote>
With smallholder farming contributing <a href="https://www.ifad.org/documents/38714170/40706188/Smallholders+can+feed+the+world_e.pdf/460ca6c2-7621-40d8-9f79-a56f6f8fa75e" target="_blank" rel="noopener noreferrer">up to 80%</a> of the food supplies in some regions, there is significant risk to food security at both a household level and a national level. This is an opportunity for the financial inclusion community and agricultural finance experts to come together to develop short-term and longer-term mechanisms to ensure that financing flows to this critical segment.
<h2>Mark Pickens, Senior Director of Social Impact at Visa</h2>
We need to step up for small and micro businesses as they are the backbone of the global economy. Unless they remain resilient and grow, most economies are going to suffer because small businesses typically account for half of all jobs and GDP. The challenge is even greater with women-owned small businesses, which face many challenges, including lack of access to capital.
<blockquote>Key factors to building resiliency will include how small and micro businesses digitize payments, access other financial services, and skill-up to operate in an increasingly digital economy.</blockquote>
Key factors to building resiliency will include how small and micro businesses digitize payments, access other financial services, and skill-up to operate in an increasingly digital economy. Earlier this year the Visa Foundation announced $210 million to help small businesses. Visa also launched online toolkits via Small Business Hubs in 20 countries, expanded our Practical Business Skills portal for a greater geographic reach, and committed to digitally enable 50 million small businesses as we collectively recover from the COVID-19 pandemic.
<h2>Joanna Ledgerwood, Independent Consultant</h2>
It has been well-documented that the COVID-19 crisis has disproportionately affected women and girls. In most countries, social norms dictate that women bear primary responsibility for feeding and caring for their families and managing the household. With children not able to attend school and sick family members needing care, women have increased responsibilities, exacerbating an already heavy workload. The result is women have less time for paid work, and because of the pandemic, less access to informal financial services such as savings groups or local shop credit to help them through.
<blockquote>This pandemic provides an opportunity to proactively promote women’s empowerment.</blockquote>
However, this pandemic provides an opportunity to proactively promote women’s empowerment and advance household food security. Understanding how women and men are impacted differently by the pandemic, as well as the risks, constraints and hardships women face and their specific needs, requires the collection and analysis of sex-disaggregated data. This data can help to design appropriate programs and policies and inform financial products and delivery channels to effectively reach women.

For example, providing digital cash transfers directly to women increases their chances of receiving and controlling money to meet household needs, which in turn is likely to lead to greater bargaining power at home. The use of sex-disaggregated data can help to design programs that mitigate unintended consequences of cash transfers such as increased domestic violence. In addition, G2P programs that take gender biases into account can enhance women’s resilience to future economic shocks and can influence change to social norms over the long-term. Now is the time to ensure that women’s increased responsibilities and reduced ability to earn income will not further widen the gender gap in financial inclusion that existed long before this pandemic.
<h2>David Ferrand, Independent Consultant</h2>
Much depends, I think, on factors beyond financial inclusion. The indications remain rather positive that the health impact on Africa will be relatively bearable, notwithstanding the tragic loss of life. But we still don’t know yet the eventual economic cost to Africa, either in absolute terms or in how it will be distributed. There is a very real concern that the recovery from the crisis could see the micro and smaller scale business sectors re-emerging significantly disadvantaged relative to larger scale. And many people who have lost their livelihoods in the crisis may end up in long-term poverty traps.
<blockquote>Only governments have the balance sheets necessary to bear the risks involved.</blockquote>
There are financial sector providers positioned to play a pivotal role in restoring liquidity to communities and investing in rebuilding. But it would be unrealistic to expect that financial sector players can do this alone. There needs to be a new partnership between the financial sector, communities, and governments. Only governments have the balance sheets necessary to bear the risks involved – but they need help from across the financial system in providing the support where it is needed.

Over the longer term, there is also a need for genuine innovation in developing solutions to deal with the human and economic losses. Digital transformation has extraordinary potential, both now and in the future, to change our societies and ultimately lead to ever greater economic, social and cultural integration of countries and the world. The best-case scenario is that the COVID-19 crisis could lead to our harnessing digital finance to empower the rebuilding and development of local communities. But this is going to require bold, swift and pragmatic action.

Implications of COVID-19 for the Most Vulnerable: A Snapshot of Views from CFI’s Advisory Council

A woman´s financial inclusion is inextricably linked with her ability to access, use, and benefit from financial products and services. The overwhelming assumption within the inclusive finance industry and accompanying players is that well-designed products <a href="https://www.poverty-action.org/sites/default/files/publications/Womens-Economic-Empowerment-Through-Financial-Inclusion-Web.pdf" target="_blank" rel="noopener noreferrer">enable women to overcome barriers</a>, thus leading inexorably to their economic empowerment and inclusion. This common notion excludes the critical enabling environment outside of the financial space that determines how and whether a woman may gain access to that well-designed product in the first place and be able to use it effectively. In other words, men’s and women’s <a href="https://www.ifpri.org/publication/2019-annual-trends-and-outlook-report-gender-equality-rural-africa-commitments-0" target="_blank" rel="noopener noreferrer">lived experiences differ</a>, thereby requiring financial products, services, and approaches that account for these differences. The broader environment is made up of the social and gender norms which determine what is appropriate conduct and behavior and tend to be highly gendered. Taking these norms into account requires not just products and tools that enhance women’s awareness and capabilities, but, equally important, <a href="https://idl-bnc-idrc.dspacedirect.org/handle/10625/57156" target="_blank" rel="noopener noreferrer">changing the financial and social systems</a> to be more inclusive of women, their needs, and their behaviors.
<h2>Norms Present Multiple Dimensions of Constraints</h2>
<blockquote>The social rules and norms that lead to inequality need to be viewed as a serious economic challenge.</blockquote>
<a href="https://www.cgap.org/research/publication/social-norms-change-womens-financial-inclusion" target="_blank" rel="noopener noreferrer">Social norms</a> are the informal rules and standards that guide social behavior, expectations, perceptions, and actions at the individual, household, and community level, influencing household roles, livelihood responsibilities, and public life. Norms often influence official laws and rules, such as when national laws limit the industries in which women may participate or the type of property they can own, if any. Gender norms are also used to limit individual choices such as a woman’s mobility or household obligations. Gender and social norms applied in this manner determine the level to which women’s economic empowerment, and women’s financial inclusion more specifically, is possible. The social rules and norms that lead to inequality need to be viewed as a serious economic challenge.
<h2>Transformative Change Is Needed</h2>
<blockquote>Better products and services, as well as increased digital literacy, are only part of the solution to reduce and eliminate these gaps.</blockquote>
Until now, financial inclusion has largely steered clear of incorporating a social norms lens, assuming instead that access to bank accounts or savings groups will almost automatically lead to more female economic inclusion. However, lack of understanding of norms, and design that does not consider these constraints or try to alter them through financial systems and services, has resulted in an extended and persistent global <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">gender gap in bank account ownership</a> over the past decade. In addition, despite the proliferation of digital financial offerings, many of the same norms that have inhibited progress on accounts manifest and are heightened when it comes to access to technology and connectivity, and as a result, we also see a persistent global <a href="https://www.gsma.com/r/gender-gap/" target="_blank" rel="noopener noreferrer">mobile gender gap</a>. Better products and services, as well as increased digital literacy, are only part of the solution to reduce and eliminate these gaps. What is needed now is a shift toward gender transformative approaches to financial services that aim to challenge systemic inequality.
<blockquote>Taking a gender transformative view requires understanding the customer as part of an ecosystem.</blockquote>
What is clear, therefore, is that to achieve universal financial inclusion, those working in inclusive finance must find a way to account for men’s and women’s behavior outside their use of financial services. The bulk of the industry relies on individualized products – either via a mobile app or one-on-one with a banking agent. Taking a gender transformative view requires understanding the customer as part of an ecosystem. Men and women do not operate in a vacuum; they live in households, communities, and as part of regional and national cultures that <a href="https://www.povertyactionlab.org/publication/enhancing-womens-agency-cross-cutting-lessons-experimental-and-quasi-experimental" target="_blank" rel="noopener noreferrer">influence and dictate their choices</a>. Thus, full financial inclusion will take a systems approach, moving away from a myopic view of building a relationship between an individual and a provider toward a collective methodology of many providers serving the many needs of each customer.
<h2>CFI Is Investing in Directly Addressing Norms Constraints</h2>
CFI is undertaking landscape research of financial inclusion providers and tools that address both supply- and demand-side normative constraints. Mapping actors who are considering norms – by looking at customer attitudes or behaviors, for example – will enable us to amplify approaches and tools that work, as well as identify opportunities for further analysis. Among our research goals are to understand the specific constraints for customers by entry point (savings group, MFI or DFS, for example) and examine the best metrics to measure short-and long-term changes in attitude, knowledge, and behavior. We will be kicking off this exploration during the <a href="http://financialinclusionweek.org/" target="_blank" rel="noopener noreferrer">2020 Financial Inclusion Week on October 13-16</a> and hope you will join us on this journey.

The Time Has Come for Gender Transformative Approaches

Micro, small, and medium enterprises (MSMEs) in Indonesia are suffering in the wake of COVID-19 according to data collected by CFI. Seventeen percent of the businesses in the sample have closed, and 85 percent of those that continue to operate estimate their profits have decreased, often by 50 percent or more.

Owners of the MSMEs that were operating at the time of the survey remained optimistic despite the economic downturn. Almost two-thirds reported they were covering their business expenses with revenue and thought they could keep their doors open for another three months based on how things were going. In addition to altering their business practices to stay open, the data on owners’ use of financial tools suggests that they are drawing down their financial resources, raising concerns that they have little cushion for the months ahead.

From July 13 to August 8, 2020, CFI conducted phone interviews with a random sample of <a href="https://bina-artha.com/" target="_blank" rel="noopener noreferrer">Bina Artha Ventura (BAV)</a> clients in Indonesia. BAV, which is <a href="https://www.accion.org/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses" target="_blank" rel="noopener noreferrer">participating in Accion’s partnership with Mastercard</a>, is a microfinance institution that uses a group lending methodology to serve entrepreneurs, mostly women, who predominantly live in rural areas. CFI completed 730 interviews, 660 of which were with female MSME owners. Two-thirds of the owners ran sole proprietorships while 31 percent ran microenterprises (one to 10 employees). Those microbusinesses employed an average of three people before the pandemic. MSMEs in the sample have been operating for almost eight years on average. Most businesses were grocery or food stands, although farming and the sale of household goods were also common. This is one of six surveys CFI is conducting in Indonesia as part of its <a href="https://www.centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact" target="_blank" rel="noopener noreferrer">ongoing effort to study the impact of COVID-19 on the financial health of MSMEs</a>. As with data from CFI’s first survey in Nigeria, the data from this survey is <a href="https://www.centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/indonesia" target="_blank" rel="noopener noreferrer">presented in this interactive dashboard</a>.
<h2>Survey Insights</h2>
<h4>Nearly one in five women-led businesses have closed. They were almost twice as likely to close as male-led businesses.</h4>
<blockquote>Of the women-led microbusinesses that closed, 78 percent said they were completely confident that they would reopen in the future, but only 57 percent of the women-led sole proprietorships that closed said the same.</blockquote>
Since COVID-19 struck Indonesia, 18 percent of women-led businesses in the sample have closed. These closures have proportionally impacted businesses of different types and sizes, and they have been driven largely by a drop in customer demand, likely the result of restrictions on movement being enforced in the country. The owners of these businesses were generally confident that they would be able to restart their business in the future, but there were major differences based on how large the businesses were prior to the pandemic. Of the women-led microbusinesses that closed, 78 percent said they were completely confident that they would reopen in the future, but only 57 percent of the women-led sole proprietorships that closed said the same. Importantly, women-led businesses were almost twice as likely to close as male-led businesses. Of the 70 male-led businesses in the sample, only 10 percent had shuttered their operations.
<h4>COVID-19 has led to dramatic declines in profits, but roughly two-thirds of businesses say they are covering their expenses.</h4>
<blockquote>70 percent of operating businesses reported a decrease in profits of 50 percent or more.</blockquote>
Businesses generally did well in the year before the pandemic struck. Fifty-six percent of respondents reported their profits increased compared to the year before while 38 percent said they had stayed the same. Only 5 percent of people said their profits had declined, but that number has skyrocketed since COVID-19: 85 percent of businesses reported that their profits have declined compared to pre-pandemic levels. Those declines have been dramatic, with 70 percent of operating businesses reporting a decrease in profits of 50 percent or more. While profit levels shrunk dramatically, owners were confident that they would be resilient to this shock. Sixty-three percent of owners said they were covering their expenses just with business revenue and think they could continue operating for at least three months based on how things were going.
<h4>MSMEs are trying to survive by changing business practices to boost revenue and cut costs, including reducing their labor force.</h4>
<blockquote>Half of operating microenterprises reported that they cut employees.</blockquote>
MSME owners are employing a mix of revenue-boosting and cost-cutting measures to ensure their revenues continue covering their expenses. For instance, a third of all operating businesses reported offering discounts to stimulate sales while a fifth chose to raise prices instead. Almost a fifth of businesses started a delivery service since the pandemic began. Cost-cutting measures were also common. For those businesses with employees, reducing the size of their workforce and work hours for staff was an important strategy. Half of operating microenterprises reported that they cut employees, leading to a 42 percent reduction in employment within this segment. This action likely had downstream effects. Many owners reported that they were working longer hours to meet customer demand or make ends meet, potentially a result of a reduced workforce.
<h4>In addition to their businesses, owners’ households are enduring, but data on financial tools suggests their margin of error is small.</h4>
Three-quarters of households reported that they were covering all their expenses with non-debt income sources. Severe food insecurity – defined as people going to bed hungry because of a lack of money – was relatively low at 10 percent. In comparison, CFI’s survey of urban MSME owners in Lagos, Nigeria found that 34 percent of owners reported severe food insecurity in their households.

While this is encouraging, a closer look at the financial tools owners are using to cope with the crisis suggests that conditions are likely to worsen. For example, 22 percent of owners sold a household asset to keep their business running. Of the households that sold an asset, only 63 percent reported being able to cover their expenses compared to 79 percent who did not sell an asset. Similarly, 47 percent of MSME owners reported skipping a loan payment, and those owners were less likely to have covered their household expenses by a similar margin compared to those who had made their payments.
<blockquote>Savings also appears to have collapsed in the months since the pandemic hit.</blockquote>
Savings also appears to have collapsed in the months since the pandemic hit. Since March, only 38 percent of people reported saving while 53 percent reported withdrawing money from savings. In the year prior to the pandemic, 84 percent of people reported saving compared to 54 percent who said they withdrew money. While the comparison is not one-to-one because of the different periods, it is certainly not encouraging, especially because savings is another indicator of households’ ability to cope. Ninety percent of owners who had saved since March reported being able to cover their household expenses compared to only 67 percent of owners who had not saved.

Collectively, this analysis implies respondents have dwindling financial options. Only so many assets can be sold, and savings will dry up if not replenished. Debts not repaid choke future lines of credit. These underlying patterns may help to explain a less optimistic sentiment shared by respondents: 79 percent said they could only cover their essentials for a month or less if their income sources dried up.
<h2>Summary and Reflections</h2>
Since the pandemic reached Indonesia in March, 17 percent of businesses have closed, profits have collapsed, and employment has plummeted. Women-owned businesses have been hit especially hard, with 18 percent of them closing compared to only 10 percent of male-owned businesses. Owners who managed to keep their business open reported a high degree of confidence in their ability to continue operating, relying on a mix of revenue-boosting and cost-cutting business practices to ensure their revenues continue to at least meet their expenses. This has helped stave off catastrophe at home, where food insecurity remains low and people continue to cover their household expenses.

However, data on the use of financial tools suggests owners and their households have little margin for error in the months ahead. Selling household assets, skipping loan payments, and net savings withdrawal activity indicate that respondents are already relying heavily on financial tools to meet their basic needs. Without a change in their circumstances, it is unlikely that MSME owners will be able to replenish these resources. Thus, it is reasonable to expect a worsening financial situation in the months ahead.

<em>This survey is part of our partnership with <a href="https://www.accion.org/mastercard-and-accion-partner-to-unlock-growth-for-millions-of-underserved-microbusinesses-around-the-world" target="_blank" rel="noopener noreferrer">Mastercard Center for Inclusive Growth</a> to understand the impact of COVID-19 on MSMEs.</em>

MSMEs in Indonesia Are Surviving but COVID-19 Leaves Little Margin for Error

Prior to the onset of COVID-19, very few of us would have foreseen a pandemic spreading so rapidly across the world, forcing governments to take actions like lockdowns and border closures. We have observed how these events found many essential services unprepared and resulted in businesses focusing on “response” and “recovery.” In many countries, the pandemic started as a health crisis, while in Sub-Saharan Africa it started as an <a href="https://www.worldbank.org/en/news/video/2020/04/21/africas-pulse-covid-19-coronavirus-causes-first-recession-in-25-years" target="_blank" rel="noopener noreferrer">economic one</a>, as closures happened quicker than the virus spread.

Despite the fact that many agricultural value chains are considered an essential service, agri-SMEs in Sub-Saharan Africa are still facing a <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">decline in demand</a> (particularly those providing farm inputs), <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_Summary_FINAL.pdf" target="_blank" rel="noopener noreferrer">liquidity shortfalls</a>, harvesting and production problems due to labor shortages, <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_FINAL.pdf" target="_blank" rel="noopener noreferrer">export and transportation delays due to lockdowns</a>, and cancelled international contracts. All these challenges are exacerbated by ongoing climate change-related shocks, like droughts, floods and <a href="https://www.nationalgeographic.com/science/2020/02/locust-plague-climate-science-east-africa/" target="_blank" rel="noopener noreferrer">locust plagues</a>. The resilience of agri-SMEs (small and medium-sized businesses that are formal and registered entities engaged in agricultural production) is being tested with these events.

While it is too early to estimate the full economic impact of COVID-19 on agri-SMEs, most lenders are taking steps to address the most pressing challenges faced by these agri-SMEs. Though it is prudent to move quickly to overcome these challenges, agri-SMEs would be better supported in the long run if lenders approach these problems through a systemic lens to understand the root of the challenges instead of focusing only on the symptoms of the overall shock.

Aside from the lack of infrastructure, agri-SMEs’ biggest challenge to growth is their limited access to finance and the regulatory burdens constraining this access. As will be discussed below, these challenges are deeper and more structurally embedded, and therefore require a long-term coordinated commitment to provide agri-SMEs access to capital.

<strong>This blog highlights steps lenders are currently taking to help agri-SMEs weather the storm and suggests areas where they can expand their focus to support these businesses in being better prepared for future economic shocks.</strong>
<h2>Explore new options to mitigate risk and increase capital flow to agri-SMEs</h2>
Since the outbreak of the pandemic, most lenders have focused on serving existing clients by increasing their financing, restructuring loans, or deferring payments to meet their clients’ liquidity challenges. By doing so, lenders are also making sure their current portfolio is not at immediate risk.
<blockquote>It’s essential that lenders offer non-traditional options to mitigate risks and increase the flow of capital to agri-SMEs.</blockquote>
While lenders may be tempted to take a more conservative stance, those with sufficient capacity should be initiating even more new deals in order for agri-SMEs to keep goods and services flowing through the highly interdependent agricultural value chain. For instance, <a href="https://datastudio.google.com/u/0/reporting/0f453d56-7fef-4823-8cd2-b2bd02773603/page/TP9WB" target="_blank" rel="noopener noreferrer">72% of MSEs in Zambia</a> need working capital to continue and grow their business, and <a href="https://datastudio.google.com/u/0/reporting/0f453d56-7fef-4823-8cd2-b2bd02773603/page/TP9WB" target="_blank" rel="noopener noreferrer">61% are running on their savings</a>. COVID-19 is exacerbating the financing gap, and it’s essential that lenders offer non-traditional options to mitigate risks and increase the flow of capital to agri-SMEs.

Luckily, lenders have successful examples which they can use to build new and more innovative risk mitigation options. Credit guarantees, such as non-bank financial instruments that mitigate default risk for lenders in Sub-Saharan Africa, are a known practice. Between 2008 and 2015, AGRA worked with several partners to offer several guarantees to extend credit to many agriculture value chain actors in Africa, demonstrating the bankability and feasibility of investing in perceived risky agricultural businesses. Additionally, <a href="https://aceliafrica.org/" target="_blank" rel="noopener noreferrer">Aceli Africa</a> has developed a new market platform that aims to incentivize financial service providers to lend to agri-SMEs while also providing technical assistance to them.
<h2>Create new strategies to find and support agri-SMEs</h2>
Many agricultural lenders are reporting that servicing new clients has either stopped or dropped to low levels, not just because of risk concerns, but also because it is almost impossible to conduct thorough due diligence without on-site visits. Given that on-site visits may not be feasible in the near-future, lenders will want to design creative strategies and leverage data to support remote discovery of new agri-SMEs.
<blockquote>Promising agri-SMEs will become more visible to lenders by providing a common set of standard bankability metrics.</blockquote>
To this end, in early 2020, MIX and SCOPEinsight formed a partnership with the support of AGRA to help address the financing gap agri-SMEs face. Through this partnership, they are <a href="https://www.themix.org/news-blog/mix-and-scopeinsight-launch-partnership-with-agra" target="_blank" rel="noopener noreferrer">building bankability metrics</a> so that agricultural lenders can identify and pre-screen agri-SMEs. These metrics play an even more important role now due to COVID-19 disruptions, and they will feed into a portal which will bridge the information gap between agri-SMEs and lenders. As a result, promising agri-SMEs will become more visible to lenders by providing a common set of standard bankability metrics that lenders can use to reduce their costs to serve SMEs. By employing bankability metrics, lenders will be able to assess the potential for growth of agri-SMEs, which currently handle <a href="https://agrf.org/dealroom/wp-content/uploads/2020/07/AGRA-AGRF-Deal-Room-talk-by-Tom-Reardon-july20-2020-final-sent.pptx" target="_blank" rel="noopener noreferrer">680 million tons of food in Africa</a>.
<h2>Offer appropriate technical assistance to agri-SMEs</h2>
<blockquote>The key to this kind of support is that it offers business development assistance that is based on a high knowledge of the value chains and challenges.</blockquote>
Several of the lenders we spoke with are increasingly providing technical assistance to agri-SMEs, recognizing that in these extraordinary times, agri-SMEs are looking for direction. Lenders are offering guidance and training on financial management, crisis management, and operating a business with limited resources. After conducting a <a href="https://rootcapital.org/wp-content/uploads/2020/06/COVID-19-client-survey-report_JUNE-2020.pdf" target="_blank" rel="noopener noreferrer">survey on COVID-19's impact on 134 of its clients</a>, Root Capital decided to offer virtual technical support through its advisory team in four areas: crisis management, emergency operations, financial management and analysis, and digital data collection and analysis.
While technical assistance is not new and is already being offered to SMEs by many organizations, the key to this kind of support is that it offers business development assistance that is based on a high knowledge of the value chains and challenges, with the main goal to support agri-SMEs to grow and become bankable organizations. Helping agri-SMEs become more bankable, and thus more professionalized and visible to other lenders, can assist them to overcome barriers to financing and become more resilient and better equipped to face future risks and shocks.

Going forward, the uncertainty of this pandemic makes it unclear how the next season or harvest will affect agri-SMEs, who are <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">highly interdependent actors in an agricultural value chain</a> where one simple disruption in the flow of goods and services creates challenges for other actors. Along with prioritizing their existing clients, as they are currently doing, lenders could consider the crisis an opportunity to employ long-term strategies that can help agri-SMEs grow into resilient institutions. Coordinated responses and actions by lenders and other actors will play a critical role in ensuring that these businesses are strong enough to continue to feed the world in the face of new pandemics and other global challenges to come.

From Crisis to Opportunity: How Can Lenders Help Build Resilient Agri-SMEs

This is the second part of CFI’s blog series exploring 2019 data from <a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> and <a href="https://www.themix.org/fintech-benchmarks" target="_blank" rel="noopener noreferrer">Results of the Fintech Benchmarks Proof-of-Concept</a> to shed light on current gender disparities in the fintech industry -- both at the management level and in their customer base. This blog post focuses on the role fintechs can play in designing products with women in mind, and thus help to close the gender gap in financial inclusion. It is structured around two broad observations and concludes with several recommendations for fintechs and researchers.
<h2>1. There is a gender gap in the customer base served by fintechs</h2>
<blockquote>The median fintech had only 36 percent female customers.</blockquote>
The Inclusive Fintech Benchmarks data reveals a gender gap in the customer base served by inclusive fintechs. Given the social aim of these fintechs, gathering critical demographic information is paramount to product design and meeting customer needs. However, only 20 out of 45 fintechs recorded sex-disaggregated data on their customer base. Among these 20 fintechs, the median fintech had only 36 percent female customers. This again drives home the need for such data, in particular to understand whether women were specifically targeted, and if so, which strategies were most effective. And if women were not specifically targeted, it would also be useful to understand how these female customers were attracted in the first place.

Perhaps it is not surprising that these fintechs have a low female customer base. Women in developing economies are <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">9 percentage points</a> less likely to have a bank account than men, <a href="https://www.gsma.com/r/gender-gap/" target="_blank" rel="noopener noreferrer">8 percent less</a> likely to own a mobile phone, and <a href="https://www.vitalvoices.org/2019/09/international-literacy-day-the-literacy-gender-gap/" target="_blank" rel="noopener noreferrer">7 percentage points</a> less likely to be literate. These gaps in financial and digital literacy are much wider in certain regions, such as South Asia and East Africa.

Access to financial services is a key enabler for women to achieve financial independence and economic empowerment. However, women face unique and often intertwined barriers in accessing financial services, including but not limited to regulatory constraints (i.e. registrations requiring national ID cards), the aforementioned low <a href="https://gflec.org/wp-content/uploads/2017/07/The-Gender-Gap-in-Financial-Literacy-A-Global-Perspective-Report.pdf?x87657" target="_blank" rel="noopener noreferrer">financial</a> and <a href="http://www.oecd.org/internet/bridging-the-digital-gender-divide.pdf" target="_blank" rel="noopener noreferrer">digital literacy</a> levels compared to men, and social norms that may restrict their mobility and financial decision-making autonomy. One of the biggest barriers women face in accessing financial services is the <a href="http://mujeresinnovadoras.com/wp-content/uploads/2018/09/Exploring-Fintech-Solutions-for-Women.pdf" target="_blank" rel="noopener noreferrer">lack of money or regular income</a>.

However, mobile money has the potential to narrow the gender gap in financial inclusion. An analysis of the Findex 2017 data by <a href="https://www.gsma.com/mobilefordevelopment/blog/the-promise-of-mobile-money-for-further-advancing-womens-financial-inclusion/#_ftn2" target="_blank" rel="noopener noreferrer">GSMA</a> finds that countries with high mobile money usage have indeed narrowed the gender gap in financial inclusion. By transacting digitally, women do not need to travel to inconvenient locations or where they feel unsafe, and they can make payments securely and privately. A <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2019/12/IRC_Report_R_WebSpreads.pdf" target="_blank" rel="noopener noreferrer">study conducted</a> on the <a href="https://www.rescue.org/" target="_blank" rel="noopener noreferrer">International Rescue Committee’s</a> (IRC) mobile money cash-aid programs in rural Sindh, Pakistan found that IRC’s consistent financial and digital literacy trainings played a crucial role. Female clients were not only able to use mobile money to receive their cash-aid, but appreciated the convenience, privacy and speed of mobile money.

Globally, however, women are still <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2019/03/GSMA-Connected-Women-The-Mobile-Gender-Gap-Report-2019.pdf" target="_blank" rel="noopener noreferrer">33 percent less likely</a> than men to own a mobile money account, mainly attributed to lower rates of mobile phone ownership and lack of access to identity documents. Some state governments in India, for example, have <a href="https://epod.cid.harvard.edu/article/mobile-phone-gender-gap-why-does-it-matter-and-what-can-we-do" target="_blank" rel="noopener noreferrer">initiated programs to subsidize phone ownership</a>, which helps to address the access gap but not the usage gap. Efforts to overcome women’s barriers to accessing financial services need to be coordinated, recognizing that women are not a homogenous group or customer segment. Fintechs are uniquely positioned to help close the gender gap in financial inclusion while also serving an untapped market that represents a large potential revenue source.
<h2>2. Female-led fintechs are more likely to target female clients and other underserved populations</h2>
<blockquote>Female-led fintechs appear more likely to serve female clients.</blockquote>
The 2019 Inclusive Fintech 50 data reveals that female-led fintechs target different markets than non-female-led fintechs. The Inclusive Fintech Benchmarks sample of 20 fintechs further shows that female-led fintechs appear more likely to serve female clients. The median female-led fintech had a customer base that was 58 percent female, compared to 35 percent female for fintechs that did not have women in leadership positions.

Diverse organizational leadership provides numerous benefits. For fintechs, female leaders can play a pivotal role in designing and marketing financial products to meet the needs of women. Although female-led and non-female-led fintechs in the Inclusive Fintech 50 2019 data target broadly defined “underserved” customers at similar rates, female-led fintechs are more likely to support micro, small, and medium enterprises (MSMEs), as well as farmers and rural households. Fintechs that do not have women in leadership positions are more likely to instead target their products to the general public, which may not produce as great an impact on financial inclusion.

&nbsp;

<img class="aligncenter wp-image-39779 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/09/Primary-Target-Market-of-Female-Led-Fintechs-V2.png" alt="" width="1059" height="678" />

Additionally, segmenting and targeting more female customers represents a market growth opportunity for fintechs. Much like sex-disaggregated client data, segmentation also forces providers to understand the specific needs of their target customers and the unique barriers they face. For instance, <a href="https://www.financedigitalafrica.org/wp-content/uploads/2018/02/FiDA-Snapshot-9-Best-practices-in-big-data-analytics.pdf" target="_blank" rel="noopener noreferrer">JazzCash Pakistan</a> wanted to understand how to improve women’s mobile wallet usage. In exploring this, their research partners, Women’s World Banking and ideas42, found that female and male customers used JazzCash accounts in very similar ways and that the real problem was not usage but acquisition. Female customers accounted for only 15% of new account openings, likely due to marketing campaigns aimed at men. With further research, the team was able to design solutions to accelerate the acquisition of new female customers.
<h2>Recommendations</h2>
<h3>For Fintechs</h3>
<ul>
 	<li>In order to ensure that they include female customers, fintechs must gather data on the gender makeup of their customer base. As mentioned earlier, among the 45 fintechs in the Inclusive Fintech 50 Benchmarks report, only 20 could report the number of female customers served, indicating a data gap. Having this data would enable fintechs to track their contribution to female financial inclusion and identify areas for growth.</li>
 	<li>Fintechs must be intentional about including female customers when designing products. They would benefit from thinking about whether their product is designed in a way that excludes women, even if it is unintentional. This can only be accomplished by conducting market research on female customer segments to better understand their needs, preferences and barriers. It is imperative that providers design compelling use cases to meet women’s financial needs. Addressing this gender gap can also represent a commercial opportunity. For instance, if mobile operators could close the gender gap in mobile ownership and use in low and middle-income countries by 2023, this would provide an <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2019/03/GSMA-Connected-Women-The-Mobile-Gender-Gap-Report-2019.pdf" target="_blank" rel="noopener noreferrer">estimated $140 billion in additional revenue</a> to the mobile industry.</li>
 	<li>Fintechs should also consider gender when marketing and selling fintech products. For instance, <a href="https://www.womensworldbanking.org/insights-and-impact/its-as-easy-as-a-b-c-how-a-b-testing-helped-onboard-more-women-customers-through-mobile-account-referrals/" target="_blank" rel="noopener noreferrer">JazzCash Pakistan recently tested behaviorally informed text messages</a> to encourage current JazzCash users to send more referrals to women. Forthcoming data from <a href="https://www.themix.org/relay-fintech" target="_blank" rel="noopener noreferrer">RELAY</a>, a fintech data solution developed by MIX, will examine the share of female agents among fintechs that rely on an agent network.</li>
</ul>
<h3>For Researchers</h3>
<ul>
 	<li>Further research should examine the role of fintechs in serving women. Some questions to explore further can include: how to monitor the performance of fintechs; how to co-create products and solutions with female customers; effective marketing strategies to onboard women; the relationship between fintechs and the SME credit gap; and whether credit scoring algorithms introduce gender bias.
<blockquote>Fintech products alone will not produce meaningful change in the lives of women.</blockquote>
</li>
 	<li>Additional research is needed on the intersection between female financial inclusion and the societal and regulatory constraints that women face. Fintech products alone will not produce meaningful change in the lives of women without addressing broader disparities in digital and economic inclusion.</li>
</ul>
We are excited to delve deeper into the 2020 Inclusive Fintech 50 data to answer some of the questions we were not able to answer based on the 2019 data here. Nevertheless, this two-part blog post has highlighted several important ways in which advancing women’s inclusion in the fintech space, both at the leadership level and among the customer base, is not only the right thing to do, but also the smart thing to do.

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