Women and microfinance
One the first things we look at when we consider an investment is the proportion of loans which go to women. We aim to invest in microfinance institutions (MFIs) that grant 70% of loans to women.
It might seem strange that we do not aim for a 50/50 balance. However we have found that investments in women make good business sense.
We aim to reach the poorest and most marginalized communities. Often we do this by entering into remote and challenging geographies, but we also do this by working closely with women who are often financially excluded. Overall, in developing countries, only 50% of women have bank accounts. The situation becomes even more challenging for women when they seek loans. The UN estimates that 70% of female owned small and medium sized business in developing countries are underserved by the finance system.
This gap presents a business opportunity for microfinance investors who are looking to help those who are most marginalised. It also has a dramatic improvement on other social performance metrics. Women who receive loans become more empowered. They send their children to school. They save money for health emergencies.
There is evidence showing that women are also more likely to invest their earnings back into their household than men. A World Bank study found that 90% of earnings are invested back into their families and communities. They will spend more money than men on food, healthcare, and schooling for themselves and their children.
These effects are accentuated by the training that many of the MFIs which we work with provide. Overtime the benefits come together and help their recipients to leave the poverty trap behind them. The word spreads to their neighbours who may also signup for similar programmes. The benefit spreads to the whole community.
It is little wonder that McKinsey has calculated that breaking down the gender gap has the potential to many countries could see their GDP (Gross Domestic Product) increasing by more than 10%. McKinsey research suggests that it can add $12 trillion dollars to global growth. Empowering women and letting them fulfil their potential can also help to diminish hunger by 100-150 million people worldwide. It even has correlations with peace.
There is also evidence to show that women take up less risky strategies with their loans and are less likely to default. This makes investments in women a good proposition for our portfolios.
Find out more about some of our microfinance partners and the work they do with women in impoverished regions by clicking here