ISLAMABAD: Only one out of every four women entrepreneurs in Pakistan is a microfinance borrower as most businesswomen rely on savings, personal assets and family loans for starting or expanding a business, shows a latest study of the World Bank.
The WB in its report, “Are Pakistan’s Women Entrepreneurs Being Served by the Microfinance Sector”, also highlights the discriminatory lending practices in the country that are pushing women entrepreneurs to look beyond microfinance providers for loans.
The report also finds that loans do not always benefit women borrowers. Men, who need loans, including those who have defaulted in the past, have begun to use women to access credit. Between 50% to 70% of microloans to women may actually be used by their male relatives, it adds. In such cases, women borrowers remain wholly accountable for the loans.
“Access to finance remains one of the biggest challenges for Pakistani women, who want to start and grow a business,” says Rachid Benmessaoud, World Bank Country Director for Pakistan.
He said the strict guarantor requirements and the practice of offering business loan products exclusively to men have only widened the gap between Pakistani businesswomen and the microfinance sector.
The study finds that microfinance loans for businesses are largely unavailable to women entrepreneurs, especially unmarried women who are considered high-risk borrowers. The requirement by loan providers makes it difficult for businesswomen to secure loans without men as guarantors.
Nearly 68% of women borrowers required a male relative’s permission in order to qualify for any kind of loan. In addition, nearly all loan providers require women clients to provide two male guarantors in order to access a business loan and at least one of the guarantors should be unrelated to the borrower.
The lenders do not accept women guarantors for these loans. This has become an obstacle in the way of expanding microfinance to the women as finding unrelated male guarantors can be a challenge for many micro entrepreneurs who could be constrained by limited mobility and social barriers.
“Group loans are often the only option for women entrepreneurs, which isn’t ideal because they are expensive, time-consuming and unsuitable to their business needs,” says Mehnaz Safavian, Senior Economist at the World Bank.
Since only small loans are available under group lending, women clients often have to borrow from more than one microfinance institution for their capital needs, which increase the transaction costs.
The report identifies steps the microfinance sector can take to expand its outreach to women entrepreneurs. The challenges are daunting, but investment in financial literacy and better designed products can give more women entrepreneurs the resources they need to grow their business.
As a driver of microfinance policy, the State Bank of Pakistan can also further inclusion in microfinance by setting standards for consumer protection of women borrowers, advocating transparency in gender reporting and discouraging discriminatory practices and policies.