BANKING ON WOMEN Who Trade Across Borders Acknowledgements This report was commissioned by International Finance Contributions from the following subject matter experts Corporation (IFC), a sister organization of World Bank and a were critical: Amil Aneja (UNCDF), Theodore Barba (Infor), member of the World Bank Group. The research was funded Anoush der Boghossian (WTO), Vanessa Erogbogbo (ITC), Deepali under the Goldman Sachs/IFC 10,000 Women program through Fernandes (UNCDF), Ousman Gajigo (African Development the Women Entrepreneurs Opportunity Facility. Bank), Aida Lizbeth Becerra Garza (SheTrades), Philip Herry (Mastercard), Andrew Holmes (Demica), Anna Zaleski Mori At IFC, the report was developed under the overall guidance (SheTrades), Marina Narganes (Demica), Eugene Bempong of Nathalie Louat (Director, CTSDR), Alexandros Ragoussis Nyantakyi (African Development Bank), Anu Peltola (UNCTAD), (Senior Economist, CERER), Jessica Schnabel (Senior Investment Gary Schneider (Infor), Heidi Stensland Warren (World Bank), Carl Officer, CFGBW), and Makiko Toyoda (Principal Investment Wegner (Contour), and Simonetta Zarrilli (UNCTAD). Officer, CTSPD). The project was led and managed by Montserrat Ganuza, Susanne Kavelaar, and Susan Starnes. The IFC Working Special thanks go to the 205 women-led businesses and Group included Claudia Gutierrez Delgado, Sinan Onat, and business owners who participated in our survey and Hui Min Toh. The report benefited from the generous inputs of interviews. We would also like to recognize the valuable input Natalia Kaur Bhatia, Matthew Brown, Colin Trevor Daley, Guy from trade associations and entrepreneurship groups, including Arnold Djolaud, Jose Felix Etchegoyen, Zeynep Ersel, Issa Faye, Madame Bao Hien from VAWE (Vietnam), Ms. Hoa from VBCWE Karla Soledad Lopez Flores, Dan Goldblum, Andrey Gurevich, (Vietnam), Pauline Okubasu from OWIT (Kenya), and Nguyen Heather Mae Kipnis, Martin Holtman, Henriette Kolb, Benie Thi Phuong Thao from VWEC (Vietnam). Additionally, for their Olivier Landry Kouakou, Alok Kumar, Ron Leung, Anurag Mishra, assistance in demand-side outreach, we would like to recognize Camilo Mondragon, Sephooko Motelle, Lien Hoai Nguyen, Wiza the contributions of WeConnect, InterAmerican Development Ng’ambi, Lory Campa Opem, and Florian Wicht. The IFC team Bank, Nadia Hasham at the United Nations Economic would also like to recognize Patrick Friend for copy editing and Commission for Africa, Agnes Gitau at GBS Africa, Leonida Cynthia-ël Hasbani for the design process. Mutuku at Intelipro, and Sindy Fortin. We are grateful for the contributions of Accenture The team would like to thank the 28 financial institutions Development Partnerships, led by Daniel Baker and Hilary who contributed to this study: ABSA Kenya, ABSA Nigeria, BAC White, supported by Aastha Bhalla, Marilia Sanchez, Diego Credomatic, Banco Atlántida, Banco del Pais, Banco Industrial Segura, and Miguel Zaldivar-Giuffredi. Research was conducted do Brasil, Banco Popular, BNDES, BRAC Bank, CEP, City Bank, with the additional assistance from Meiqi He, Neema Kalidas, Contour, COOP, Coronation Merchant Bank, Equity Bank, Gabriel Leite, Tiantian Lu, Pawan Mantri, Kai Milici, Magda Ficohsa, I&M Bank, KCB Group, Grupo LAFISE, Sea Bank, Sicredi, Morice, Linh Phuong Nguyen, Vinh Nguyen, Pooja Patel, Kevin Standard Chartered, Sterling Bank, Tien Phong (TP) Bank, United Poonan, and Hong-Van Vo. Additional support was provided Commercial Bank, Vietin Bank, Vietnam Microfinance Working by Leigh Goodwin and Jonathan C. Thomas of the Accenture Group, and Vietnam Prosperity Joint-Stock Commercial (VP) Research team. Bank. About IFC IFC is the largest global development institution focused on the private sector in emerging economies. IFC, a member of the World Bank Group, advances economic development, and improves the lives of people by encouraging the growth of the private sector in emerging economies. It achieves this by creating new markets, mobilizing other investors, and sharing expertise. In doing so, it creates jobs and raises living standards, especially for the poor and vulnerable. IFC’s work supports the World Bank Group’s twin goals of ending extreme poverty and boosting shared prosperity on a livable planet. For more information, visit www.ifc.org. BANKING ON WOMEN WHO TRADE ACROSS BORDERS 1 LIST OF FIGURES FIGURE 1.  Seeds of Prosperity: Mamounata Velegda’s Success Story— BOW-GTFP Program supports women who trade across borders12 FIGURE 2.  The challenges faced by women entrepreneurs in accessing trade finance, based on interviews with 70 women in Brazil, 60 in Kenya, and 85 in Nigeria17 FIGURE 3.  Multiple alternative methods for women-owned firms to potentially bypass or reduce collateral requirements in order to improve cash flow by obtaining early or advance payments.20 FIGURE 4.  Case Study: Women’s Access to Trade Finance in Vietnam.  25 2 BANKING ON WOMEN WHO TRADE ACROSS BORDERS TABLE OF CONTENTS ACKNOWLEDGEMENTS 1 EXECUTIVE SUMMARY 6 DEFINITIONS AND ABBREVIATIONS 7 1.  INTRODUCTION: THE NEXUS BETWEEN GENDER, INTERNATIONAL TRADE, AND TRADE FINANCE.  8 2.  GENDER AND ACCESS TO FINANCE 10 Access to Finance is Challenging for Women-Led Firms 11 Trade Finance Characteristics Further Constraint Women’s Access  13 Collateral Requirements 13 Scale of Business Activity 13 Complex Documentation Process 14 Absence of Market Information 14 Cost of Risk Mitigation  15 Sectoral Disparities in Trade Finance Availability  15 3.  COUNTRY STUDIES – RESULTS FROM BRAZIL, KENYA, AND NIGERIA 16 4.  SCALING UP TRADE FINANCE FOR WOMEN-OWNED FIRMS 18 Tackling the Information Deficit and De-Risking  19 Reducing Complexity and Cost: Digitization 22 Mainstream Alternatives Through Fintech 23 Capacity Building for Firms and Banks  24 Blended Finance  26 5.  RECOMMENDATIONS AND ACTION ITEMS 27 BIBLIOGRAPHY 28 ANNEX 1: RECOMMENDATIONS TO STAKEHOLDERS – CALL TO ACTION 30 BANKING ON WOMEN WHO TRADE ACROSS BORDERS 3 4 BANKING ON WOMEN WHO TRADE ACROSS BORDERS FOREWORD Trade between countries boosts economic growth and lifts people out of poverty in emerging markets by creating jobs, particularly for small and medium enterprises (SMEs). However, the exchange of goods and services between entities in different countries often involves a complex set of transactions, multiple institutions, as well as financial intermediaries. To add to the complexities of cross-border trade, SMEs in emerging markets experience various levels of difficulty in getting financing from banks. Women-owned SMEs particularly face greater challenges, as they tend to be smaller and younger, which means they have shorter credit histories and therefore less likely to get financial support. In addition, women often lack sufficient collateral because they generally own fewer assets, making it difficult for them to get loans to launch or expand their companies, hire more people, and contribute to the growth of local economies. Accessing trade financing presents even greater challenges for women. Women-owned businesses often operate informally, so they are excluded from public records, which is critical for financial institutions to access and to assess the risks profiles of customers before extending trade financing. As part of efforts to address the trade finance gap, IFC has mobilized billions of dollars to support importing and exporting businesses in emerging markets thrive. As of summer 2023, IFC’s Global Trade Finance Program has issued guarantees covering transactions for more than $100 billion since its inception in 2005. Since 2019, IFC’s Banking on Women Global Trade Finance Program has supported hundreds of transactions with women exporters and importers, totaling over $260 million (see Figure 1 – Seeds of Prosperity: Mamounata Velegda’s Success Story). Still, to enhance trade finance opportunities for women-led businesses, we need to understand better the challenges surrounding their access to trade finance. And this study is the first attempt to bring greater clarity to that subject. The study suggests that certain aspects of trade finance markets magnify the difficulties faced by women-led firms. For example, stringent collateral requirements and a costly and complex documentation process discourage women from seeking trade finance. The report offers insight into these problems and provides potential solutions through interviews with women entrepreneurs and financial institutions across several countries in Africa and Latin America. IFC’s commitment to reduce the trade finance gender gap and help women-led enterprises thrive relies on both our expertise and our record of mobilizing capital for development. We hope the insights and recommendations in the study will improve decision-making for all stakeholders across this sector. Mohamed Gouled, Vice President of Industries, IFC Nathalie Louat, Global Director, Trade and Supply Chain Finance, IFC BANKING ON WOMEN WHO TRADE ACROSS BORDERS 5 EXECUTIVE SUMMARY Banking on Women Who Trade Across Borders highlights Scaling up Trade Finance for Women-Owned Firms (Chapter the need for gender equality in international trade and 4) provides strategies designed to increase women’s trade finance, emphasizing its importance for sustainable access to trade finance, such as focusing on reducing the development in emerging markets. The positive impact that information deficit, simplifying financial instruments women-led enterprises have on economic growth and poverty through digitization, promoting fintech, and increasing reduction is well documented, however there remains a limited capacity building for both firms and financial institutions. understanding of how international trade intersects with female The requirement for collateral is addressed through the participation, particularly in accessing trade finance. Women implementation of institutional frameworks—collateral entrepreneurs and women-owned enterprises face a number registries and credit bureaus—to broaden access to finance of challenges in accessing trade finance, including gender bias, for women-led enterprises. Financing based on warehouse limited networks, and information disparities; these are further receipts and supply chain finance are alternatives to collateral, exacerbated by the business practices of trade finance markets. particularly beneficial for women traders in the agricultural This report examines the status of women’s access to trade sector. Access to trade finance can be further improved through finance, and provides potential solutions derived from interviews fintech, which can play an important role in facilitating with women entrepreneurs and financial institutions in Brazil, creditworthiness assessments, while providing diverse funding Kenya, and Nigeria. sources and improving payment methods. Gender and Access to Finance (Chapter 2) summarizes the Blended finance is seen as a transformative approach to documentary evidence for the specific challenges women- empower women trade entrepreneurs by leveraging private led firms encounter in accessing trade finance, examining sector capital with concessional funds and donor support the systemic barriers such as small business size, relatively to promote sustainable growth for women-led businesses. young business age, and the informal status of many Blended finance creates a more inclusive financial ecosystem women-owned businesses. These barriers persist, despite through the strategic application of donor funds and the previous efforts to dismantle them, indicating deeply ingrained integration of gender-focused criteria into portfolio analysis. biases within capital markets and societies. Stringent collateral The main results of this study and a call to action for all requirements, the scale of business activity needed to justify stakeholders—finance providers and development finance relevant financial instruments, complex documentation institutions, government and regulatory bodies, and women- processes, the absence of market information, and sectoral led businesses—are summarized in Recommendations and disparities in trade finance availability are identified as specific Action Items (Chapter 5). All stakeholders have an important hindrances to women’s ability to access trade finance. The part to play: Financial institutions can benefit from tailored connectivity between these factors demonstrates the need for training and offer more risk-sharing facilities; governments and targeted intervention to address the gender gap in trade finance regulatory bodies can improve the regulatory framework and for women who trade across borders. facilitate the approval of risk-sharing facilities; development Country Studies – Results from Brazil, Kenya, and Nigeria partners need to provide capacity training on innovative trade (Chapter 3) presents the outcome of interviews conducted finance instruments; and women-owned enterprises can actively with over 200 women in three different emerging economies, participate in industry associations. Finally, collaborations and provides a real-time portrait of the financial difficulties between finance institutions and governmental bodies can and common challenges encountered by women-owned firms mitigate risks and raise awareness, providing a forum to engaged in cross-border trade. The requirement for collateral discuss potential solutions. Improving the perceived risk profile emerges as the primary obstacle to accessing trade finance of women-owned businesses is crucial; feasible approaches across all three nations. High interest rates and fees place include taking into account their historical low default rates further financial constraints on women traders, reflecting wide and the self-liquidating nature of trade. The gender gap in gender-based disparities in access to trade finance. Bureaucratic access to trade finance can be narrowed by recognizing the processes pose another significant barrier, particularly in Nigeria, advantages of banking women customers and by providing legal highlighting the need for streamlined procedures and greater encouragement for the digitization of trade finance transactions. institutional capacity to support small and medium enterprises. Knowledge gaps about trade finance instruments highlight the need for targeted capacity building to empower women traders to increase their participation in global markets. 6 BANKING ON WOMEN WHO TRADE ACROSS BORDERS DEFINITIONS AND ABBREVIATIONS Definitions Assignment of proceeds: Legal mechanism whereby the Letter of credit: Form of documentary credit whereby a bank beneficiary of a letter of credit assigns the right to receive promises to honor drafts payable to one party, drawn on it by payment under the letter of credit to a third party. another party. Avalization: The provision of a financial guarantee issued by a Promissory note discounting: Financial mechanism in which bank or financial institution to endorse a negotiable instrument a promissory note is sold to a bank or financial institution for a such as a bill of exchange or promissory note. discount in exchange for cash. Bill avalization: A trade finance mechanism whereby a bank Receivables finance/factoring: Short-term financing issues a guarantee (aval) on a bill of exchange issued by an mechanism, typically used to improve cash flow, whereby an exporter to ensure payment to the importer. enterprise sells its invoices to a financial institution at a discount for cash. Export letter of credit discounting: A trade finance technique in which an exporter sells its receivables (payments due under Red Clause letter of credit: Variation of the traditional letter an export letter of credit) to a bank or financial institution at a of credit, containing a unique clause allowing the bank to make discount in exchange for cash or credit. advance payments (generally up to 25%) to the exporter before the exporter presents any shipping documents. This could even Fintech: Advances in technology that have the potential take place prior to manufacturing or packaging, and is suitable to transform the provision of financial services spurring the for financing raw materials. development of new business models, applications, processes, channels, and products. Trader: Enterprise engaged directly in cross-border trade of goods or services. Gender gap: Disparity between women and men in accessing and using financial services and products. Trade finance: Financial instruments and products used to facilitate international trade transactions. Green Clause letter of credit: Variation of the traditional letter of credit, containing a unique clause allowing the bank to Transferable letter of credit: Specialized letter of credit that make advance payments (generally up to 80%) to the exporter allows the original beneficiary of the letter of credit to transfer all before the exporter presents any shipping documents. The or part of the proceeds to a secondary beneficiary, who may be a payment generally takes place against title documents, such as a supplier. warehouse receipt. This variation is often used in the commodity trade market and offers more security than a Red Clause letter of credit. Abbreviations BOW Banking on Women L/C Letter of credit (D)FI (Development) Finance Institution SCF Supply chain finance Earnings before interest, taxes, depreciation, and SME Small and medium enterprise EBITDA amortization WLB Woman-led business Forex Foreign Exchange Woman-owned or woman-led small and medium WSME GTFP Global Trade Finance Program enterprise BANKING ON WOMEN WHO TRADE ACROSS BORDERS 7 1.  INTRODUCTION: THE NEXUS BETWEEN GENDER, INTERNATIONAL TRADE, AND TRADE FINANCE. Understanding the connections between gender, international trade, and trade finance is critical to solving the problems in access to finance faced by women who trade across borders. 8 BANKING ON WOMEN WHO TRADE ACROSS BORDERS Gender equality has been recognized as a fundamental markets employ 8.9% and 5.1% more women than non-exporting pillar within the global development agenda, standing firms and non-importing firms, respectively.4 as an indispensable element in the pursuit of sustainable However, women-led firms account for only about 15% of development worldwide. Embraced by the development exporting businesses globally.5 So, why is trade finance vital community within the United Nations Millenium Development to them? An exchange of goods or services between entities Goals (2000) and Sustainable Development Goals (2015), gender in different countries involves a significant time lag, which equality is not approached merely as a moral imperative or an requires financial intermediation between entities that do not objective in itself, but rather as a cross-cutting development necessarily have a pre-existing relationship. Needs for this kind target catalyzing progress across societies. Enhancing women’s of intermediation remain largely unmet, especially for smaller participation in economic activities—through greater female enterprises and for new traders.6 7 Globally, the trade finance gap engagement in the workforce, as well as growing the numbers, stands at about $2.5 trillion according to estimates by the Asian scale, and scope of enterprises led by women—is an essential Development Bank—this represents about 10% of global trade,8 part of the agenda associated with economic growth and mostly in emerging economies. poverty reduction.1 While empirical results often present a varied picture, the potential for women-led enterprises to contribute to This report highlights five specific features of trade finance this agenda has been highlighted in different contexts.2 markets that tend to amplify the difficulties faced by women- led firms: a) collateral requirements, b) the scale of business International trade is an essential aspect of economic activity justifying the use of relevant instruments, c) the complex activities; and yet, its intersection with female participation documentation process, d) cost of risk mitigation, and e) sectoral in the economy is less well understood. This is especially true disparities in the availability of trade finance. The effect of these for trade finance, which is a critical facilitator of cross-border market features mirrors challenges in women’s participation transactions. Because trade finance represents a specific form of in economic activities more generally, such as their ownership financing, access to it is associated with the common challenges of assets, financial literacy, participation in business networks, related to general finance, alongside specific issues associated or the sectoral concentration and the small average size of with the complexities of trade finance instruments. Women- their activities, among others. To frame these issues succinctly, led enterprises have consistently documented such challenges, numerous women entrepreneurs and financial institutions which tend to exacerbate general and specific access to trade across several countries in Africa, Asia, and Latin America were finance in a prohibitively acute manner. Other challenges interviewed, to directly incorporate the voices of individuals on to women’s effective participation in trading across borders the ground. The report concludes with solutions for relevant include gender bias, smaller networks, and uneven access to stakeholders, including firms, financial institutions, government, information.3 The research in this report is an attempt to better and development finance institutions, which can help increase understand the challenges faced by women entrepreneurs in access to trade finance and close the gender gap for women who trade finance and to provide potential solutions to alleviate trade across borders. them. Such solutions have the potential to unleash significant economic benefit for women-led firms through international trade. Research has shown that businesses involved in trade create better, higher-wage jobs for all workers, particularly female workers. Exporting and importing firms in emerging 1  Back-of-the-envelope estimates suggest that Gross Domestic Product (GDP) contributions by increased female participation in the workforce could lie in the range of 6–26% (Citigroup 2017; McKinsey Global Institute 2015). Further, increasing gender parity among entrepreneurs could boost global GDP by 2–3% and add millions of jobs (Citigroup 2022), with lasting positive effects on the economy. In Asia alone, women’s economic empowerment has been associated with an increase in per capita income of 30.6% after one generation and 71.1% after two generations (Park and Inocencio 2018) 2  In the private sector, recent studies found companies with gender-diverse boards had better EBITDA margins, stock performance, and less shareholder dissent (London Business School, SQW, and Financial Reporting Council 2021). In addition, Morgan Stanley Capital International found that companies with strong female leadership at the board level generated a 36.4 % higher return on equity than companies without a critical mass of women on their boards (Kumar 2019) 3  The global gender finance gap for SMEs is estimated at $1.7 trillion (IFC 2017). Women entrepreneurs, particularly small-scale traders, face a higher risk of bribery and harassment than male entrepreneurs (World Bank Group and World Trade Organization 2015). Women entrepreneurs have less access to trade networks, which are highly essential in facilitating trade links (Schiff et al. 2013) 4  World Bank and World Trade Organization, Women and Trade: The Role of Trade in Promoting Gender Equality, 2020 5  OECD/WTO, Aid for Trade at a Glance 2017: Promoting Trade, Inclusiveness and Connectivity for Sustainable Development, 2017 6  IFC-World Trade Organization, Trade Finance in the Mekong Region, 2023 7  The term ‘traders’ in this report refers to enterprises engaged directly in cross-border trade of goods or services 8  Asian Development Bank, 2023 Trade Finance Gaps, Growth, and Jobs Survey, 2023 BANKING ON WOMEN WHO TRADE ACROSS BORDERS 9 2.  GENDER AND ACCESS TO FINANCE Access to finance plays a key role in facilitating economic opportunities and fostering growth. However, for women entrepreneurs and women-owned businesses, accessing finance—particularly trade finance—presents unique challenges and barriers that hinder women’s participation in international trade. This chapter explores the systemic hurdles that women face in this area, elaborating on the key aspects of trade finance markets that magnify the problems encountered by women-led firms. 10 BANKING ON WOMEN WHO TRADE ACROSS BORDERS Access to Finance is Challenging for Women-Led Firms access to finance even after accounting for the characteristics described above.18 This strongly indicates that bias is deeply Across many regions of the world, women-led businesses ingrained within capital markets and societies. often face constraints in accessing finance due to several common features, well-documented in the literature. A gender gap in asset ownership has real implications for Women-led businesses are generally smaller, whether measured women’s access to finance. Women own fewer assets than by number of employees or assets;9 10 they have a younger men, a trend influenced by deeply-ingrained cultural practices19 average age, resulting in shorter credit histories,11 and they tend 20 and sometimes reinforced by legal codes.21 In an environment to survive and grow less than male-led competitors.12 Moreover, where women-owned businesses are perceived as riskier, the women-led businesses are more likely to be informal, which inability to provide assets as collateral further restricts access to excludes them from public track records.13 Such observed finance, contributing significantly to the observed differences in patterns have significant implications for their access to performance between female- and male-owned firms.22 Women finance. Limited access to finance weakens their growth, asset may also be perceived by credit providers as less committed ownership, and survival prospects, creating a vicious circle. to their businesses because they often have the primary responsibility for household demands, thereby diminishing The lower average financial literacy among women and the their access to finance.23 However, neither perception is widely concentration of women-led businesses in specific sectors supported by empirical evidence. Recent studies suggest, for such as retail services and agriculture—sectors that are often example, that women are more likely than men to repay their underserved by financial institutions14—discourage these firms loans.24 25 from seeking external finance.15 16 On the supply side, financial institutions perceive women-owned enterprises as high risk, This report proposes a number of recommendations (see partly due to their small size and young average age, and Annex 1) aimed at finance providers, development finance partly because of incomplete records. Consequently, financial institutions, government and regulatory bodies, and women- institutions frequently require collateral and are more inclined to led businesses to counter the challenges faced by women reject applications or impose higher interest rates for the same traders in accessing trade finance. Mamounata Velegda’s story reasons.17 (Figure 1) provides an inspiring example to women entrepreneurs of successful access to trade finance. Observations regarding firms’ characteristics such as size, age, sector, and managerial experience explain a significant portion, but not all, of the gender disparity in access to finance. Women-led businesses continue to experience reduced 9  Amin, Gender and firm-size: Evidence from Africa, 2010 10  Compared to women, men own a far larger range of assets (Jacobs et al. 2011), including more high-value assets such as land (Kantor 2002). In many countries, this unequal distribution often occurs at a relatively early age. Such barriers limit women’s ability to start businesses (Greer and Greene, 2003) and if they manage to overcome such formidable constraints, it sets these women-owned businesses on lower growth trajectories (Carranza et al. 2018) 11  Klapper and Parker, Gender and Business Creation for New Firm Creation, 2011 12  Yang and del Carmen Triana (2019) demonstrate that female entrepreneurs’ businesses tend to have a higher failure rate than those of male entrepreneurs. Conversely, Allison and al. (2023) showed that the underperformance of firms with female top management is significantly influenced by SMEs and varies across different world regions 13  McKenzie, Gender, Entry Regulations, and Small Firm Informality: What Do the Micro Data Tell Us?, 2009 14  In Africa, less than 1% of commercial lending is destined for the agricultural sector (IFC 2013). Financial institutions are reluctant to accept the risks prevalent in this sector and are ill-prepared to finance agri-food industries (Ruete 2015) 15  Aterido et al., Access to finance in Sub-Saharan Africa: is there a gender gap?, 2013 16  Mallik et al., Does firm size really affect the outcome of loan applications?, 2022 17  Muravyev et al., Entrepreneurs’ gender and financial constraints: Evidence from international data, 2009 18  Aristei and Gallo, Does gender matter for firms’ access to credit? Evidence from international data, 2016 19  Brixiová et al., Enterprising Women in Southern Africa: When Does Land Ownership Matter?, 2020 20  World Bank, Women, Business and the Law, 2022 21  Hallward-Driemeier and Hasan, Empowering women: Legal Rights and Economic Opportunities in Africa, 2012 22  Lemma et al., Gender differences in business performance: evidence from Kenya and South Africa, 2022 23  World Bank and World Trade Organization, Women and Trade: The Role of Trade in Promoting Gender Equality, 2020 24  IFC, Lower Nonperforming Loans (NPLs) for Women-Owned SMEs, 2023 25  D’Espallier et al., Women and Repayment in Microfinance: A Global Analysis, 2011 BANKING ON WOMEN WHO TRADE ACROSS BORDERS 11 Figure 1.  Seeds of Prosperity: Mamounata Velegda’s Success Story— BOW-GTFP Program supports women who trade across borders Mamounata Velegda is one of Burkina Faso’s business expertise to women-owned SMEs through an most successful women entrepreneurs. innovative investment-advisory model. Collaborating with financial institutions, BOW designs customized value She owns a thriving seeds and grain processing factory in propositions that provide both financial and non-financial the capital, Ouagadougou. services to empower women entrepreneurs. But getting there wasn’t easy. She started her business In 2019, IFC’s BOW initiative and GTFP joined forces with only 300 CFA francs—less than $1, and began by to create BOW-GTFP. This Women in Trade initiative walking 15 kilometers daily to sell corn flour at the market encourages banks to increase access to trade finance for in her home village. women-owned SME entrepreneurs in emerging markets Today, her business exports sesame seeds not only to so that they can grow and expand their businesses. The neighboring countries like Togo, but her company, Groupe program is supported by the Women Entrepreneurs Velegda, has also established a thriving presence in Opportunity Facility (WEOF), a partnership launched by Denmark and Switzerland. the Goldman Sachs/IFC 10,000 Women program and BOW. Mamounata is now building a rice processing facility in To date, more than $260 million of trade finance funding Burkina Faso, with the aim of elevating the nation’s local has been allocated by this partnership to support more rice production and positioning it as a prominent exporter than 233 women entrepreneurs around the world. of this beloved West African staple. Since its launch, BOW has invested $4.29 billion in With support from IFC’s client Coris Bank International emerging market financial institutions, making substantial (CBI), Mamounata has created more than 300 jobs and strides with 251 projects across 76 countries. As the BOW inspired many other women across Burkina Faso to open business continues to break barriers and empower women their own businesses. CBI is part of IFC’s Banking on globally, it remains a beacon of progress, setting new Women initiative, as well as the largest African partner in benchmarks for gender-inclusive financing. the Women in Trade Initiative under Global Trade Finance Program (GTFP). Since its inception in 2012, IFC’s Banking on Women Source: IFC Stories - Women in Trade 2024 program (BOW) has provided financial assistance and 12 BANKING ON WOMEN WHO TRADE ACROSS BORDERS Trade Finance Characteristics Further Constraint Women’s Access Trade finance represents a distinct category of finance, entailing the typical access challenges inherent to finance discussed earlier, as well as issues specific to trade finance instruments. The latter tends to be particularly challenging for women-led trading firms, potentially rendering access to finance impossible. This section elaborates on five aspects of trade finance markets that tend to magnify the difficulties faced by women-led firms: collateral requirements, the scale of business activity necessary to justify the use of relevant instruments, the complex documentation process, the absence of market information and the cost of risk mitigation, and the sectoral disparities in trade finance availability. COLLATERAL REQUIREMENTS Collateral is a prerequisite for the majority of credit provision faced by SMEs and women-owned trading firms. Moreover, in emerging economies, with this requirement also extending trade finance transactions are typically short-term and can be to trade finance. For example, in Africa, the absence of collateral self-liquidating. is identified by 90% of commercial bank respondents as the However, providing credit for cross-border transactions primary reason for the rejection of trade finance applications.26 is inherently riskier than transactions taking place within 27 Similarly, among commercial banks in Asia, lack of collateral a single jurisdiction, due to the involvement of numerous is the most commonly cited reason for rejecting applications.28 actors and different, potentially conflicting, enforcement This poses a significant challenge for women entrepreneurs who mechanisms. For example, even when the value of the may be deterred from applying altogether due to the lack of such underlying goods is substantial, it is not straightforward for the assets. credit-providing financial institution to legally seize and dispose In principle, the absence of capital or land assets should of goods in the case of default when the goods are located in pose less of a constraint to accessing trade finance, as the a different jurisdiction. Therefore, asset collateral remains the goods being traded can serve as collateral. Unlike traditional first recourse for banks in trade finance transactions, which lending, where the balance sheet is the primary determinant disproportionately affects asset-light women-owned firms and of an applicant’s creditworthiness, the use of traded goods SMEs. as collateral would be expected to mitigate the disadvantage SCALE OF BUSINESS ACTIVITY Due to the complexity of processing, the minimum efficient Women-led firms are disproportionately represented among size of cross-border transactions for banks to provide very small, small, and medium enterprises; and surveys show trade finance is typically high compared to other types of that women-led firms are smaller than the median size of firm finance, often exceeding the capacity of smaller trading that requests trade finance,31 32 confirming earlier evidence firms. For instance, in Africa, the average value of a letter of of a strong negative correlation between the size of the firm credit (L/C)—the most widely used trade finance instrument— and women ownership.33 Therefore, it should therefore not be is approximately $2 million.29 To provide context, the average surprising that women-owned firms are more likely to find bank- general-purpose loan for micro, small, and medium enterprises is intermediated trade finance beyond their reach. $1,267, $21,438, and $133,000, respectively,30 This means that the value of most successful L/Cs far surpasses the range demanded by most SMEs. 26  IFC-World Trade Organization, A study of Côte d’Ivoire, Ghana, Nigeria, and Senegal, 2022 27  African Development Bank, Trade Finance in Africa: Trends Over the Past Decade and Opportunities Ahead, 2020 28  Kim et al., 2019 Trade Finance Gaps, Growth, and Jobs Survey, 2019 29  African Development Bank, Trade Finance in Africa, 2014 30  IFC, IFC Financing to Micro, Small, and Medium Enterprises Globally, 2014 31  World Bank and World Trade Organization, Women and Trade: The Role of Trade in Promoting Gender Equality, 2020 32  Di Caprio et al., Trade Finance Gaps, Growth and Jobs Survey, 2016 33  Amin, Gender and firm-size: Evidence from Africa, 2010 BANKING ON WOMEN WHO TRADE ACROSS BORDERS 13 COMPLEX DOCUMENTATION PROCESS Cross-border transactions involve more complex legal Given the complexity of trade finance transactions, and and compliance issues than transactions within a single considering the large gender gap in this area—especially jurisdiction. A significant aspect is the documentary in emerging economies—women-led enterprises are at a requirements for typical trade finance applications such as L/Cs. greater disadvantage.35 It is important to note that financial A standard trade finance application can require the involvement literacy is not only associated with the use of financial services, of as many as 20 separate certifying entities, and up to 100 such as having a bank account or insurance, but also with documents (e.g., bills of lading, commercial invoices, insurance) making better financial decisions and accessing financial that must be consistent and sometimes processed sequentially. services at lower costs. More importantly for trade finance, Indeed, documentary processing can be time-consuming and financial literacy also affects the depth and accuracy of financial costly, accounting for 50-60% of the price of a typical transaction recordkeeping.36 in some cases.34 ABSENCE OF MARKET INFORMATION Information asymmetry presents a major barrier to SME through their interactions with other producers or service access to finance, affecting both the demand and supply sides providers. Importantly, smaller networks also restrict the market of capital. Commercial banks often have difficulties in assessing information available to the women themselves regarding trade the creditworthiness of SME trade finance applicants due to opportunities, financing options, and other alternatives to their limited track record, credit history, and lack of published engage in international trade. financial information. Large surveys of African commercial banks The information deficit results in reduced demand for trade active in trade finance consistently identify this as a persistent finance. Discouraged applicants—traders who either do not obstacle to providing trade finance.37 38 39 Surveys in Asia reveal apply or are rejected for financing—tend to widen the gender that commercial banks face similar challenges in assessing gap.43 The fact that there are fewer rejections of trade finance creditworthiness when extending trade finance to SMEs.40 41 applications relative to other loan types, such as working capital Furthermore, the requirement to comply with stringent loans,44 suggests that most non-users have never applied. This regulatory regimes to prevent money laundering and is either because they are not aware of the instruments or terrorist financing in international transactions tends to because they have been discouraged from applying by limited or worsen the information constraints facing smaller firms. inaccurate information. Indeed, insufficient information about firms is cited as one of the Traders face a further constraint in that the available top five reasons for the rejection of trade finance applications by information may vary by trade finance instruments, as banks in Asia. Anti-money laundering and know-your-customer indicated by the significant heterogeneity in observed requirements not only remain a top reason for the rejection of rejection rates by instrument.45 In interviews conducted by trade finance applications by SMEs but also serve as a general IFC between October 2021 and March 2022 in Africa, Southeast impediment for these banks to expand their trade finance Asia, and Latin America, banks indicated that their clients portfolios. are apparently aware of only a small number of trade finance Women-led businesses may be unequally affected by such instruments compared to the relatively large number available, regulatory requirements. Women tend to have smaller and that their knowledge is restricted to mainly L/Cs, which networks within the markets they operate,42 limiting the have the highest rejection rates among all the trade finance amount of information they can provide to financial institutions instruments. 34  Pasadilla, Regulatory Issues Affecting Trade and Supply Chain Finance, 2014 35  Hasler and Lusardi, Gender Gap in Financial Literacy: A Global Perspective, 2017 36  Xu and Zia, Financial Literacy around the World: An Overview of the Evidence with Practical Suggestions for the Way Forward, 2012 37  African Development Bank, Trade Finance in Africa, 2014 38  African Development Bank, Trade Finance in Africa: Overcoming Challenges, 2017 39  IFC-World Trade Organization, Finance in West Africa. A study of Côte d’Ivoire, Ghana, Nigeria, and Senegal, 2022 40  Kim et al., 2019 Trade Finance Gaps, Growth, and Jobs Survey, 2019 41  Kim et al., 2021 Trade Finance Gaps, Growth, and Jobs Survey, 2021 42  Dawson et al., Entrepreneurs’ Perceptions of Business Networks: Does Gender Matter?, 2011 43  African Development Bank, Trade Finance in Africa: Trends Over the Past Decade and Opportunities Ahead, 2022 44  International Chamber of Commerce, ICC Global Survey on Trade Finance, 2020 45  For example, the average rejection rate for commercial L/Cs is twice that of guarantees and almost five times that of a standby L/C (ICC 2020), although an L/C as a primary payment method is less risky in terms of payment risk 14 BANKING ON WOMEN WHO TRADE ACROSS BORDERS COST OF RISK MITIGATION During credit risk origination for trade finance transactions, The cost of this insurance is determined not only by country commercial banks must mitigate numerous sources of risk. risk but also by client firm characteristics such as size of The credit risk of the client can be addressed using balance sheet the firm and cross-border transaction history.46 As women- information or collateral. However, due to the complexity of led firms are smaller and less likely to engage in external trade international transactions across different jurisdictions, other relative to male-led firms,47 48 this increases the cost of finance for sources of risk also remain, such as transportation. Often, the banks. This higher cost often translates into higher prices for financial institutions will take out insurance to further minimize trade finance for women-owned firms and SMEs. such risks. SECTORAL DISPARITIES IN TRADE FINANCE AVAILABILITY The concentration of women-led firms in the agriculture and An example of the connection between the two sectors can asset-light services sectors of emerging economies affects be found in West Africa. In Nigeria, 63% of women-owned SMEs their ability to access trade finance. Financial institutions are in the agriculture and wholesale/retail sectors,50 and within are often reluctant to accept the risks from factors such as the Economic Community of West African States, the agricultural weather, climate, or commodity prices that are prevalent in sector has the highest proportion of traders, indicating the agricultural sector. Such institutions may be ill-prepared to insufficient trade finance exists.51 The fourth most populous finance sustainability transitions in agri-food industries49 such as sector for women-owned SMEs falls within the wholesale/retail the adoption of environmentally friendly technology. Likewise, sector and is “fast-moving (i.e., sold quicky and at relatively low banks may not be in a position to adequately assess the risks for cost) consumer goods.”52 Consistent with this example, survey fast-moving consumer goods, where production standards can data from East Africa shows a significant gender difference in vary, and market fragmentation and volatility exist. terms of discouraged firms—firms with a requirement for finance but which did not apply due to fear of rejection. Specifically, the four largest sectors with discouraged firms are retail/wholesale, small-scale manufacturing, apparel/garment, and agriculture. 46  Pasadilla, Regulatory Issues Affecting Trade and Supply Chain Finance, 2014 47  Orser et al., Gender and export propensity, 2010 48  Garg and Shastri, Export Behaviour of Firms in India: Does Gender of the Firm Owner Matter?, 2022 49  Ruete, Financing for Agriculture: How to boost opportunities in developing countries, 2015 50  EFInA, Driving Access to Finance for MSMEs in Nigeria, 2021 51  IFC-World Trade Organization, Trade Finance in West Africa. A study of Côte d’Ivoire, Ghana, Nigeria, and Senegal, 2022 52  Fast-moving consumer goods, also known as consumer-packaged goods, are products that are sold quickly and at a relatively low cost. Examples include non-durable household goods such as packaged foods, beverages, toiletries, candies, cosmetics, over-the-counter drugs, dry goods, and other consumables BANKING ON WOMEN WHO TRADE ACROSS BORDERS 15 3.  COUNTRY STUDIES – RESULTS FROM BRAZIL, KENYA, AND NIGERIA To provide a deeper insight into the financial constraints pattern consistent across Brazil, Kenya, and Nigeria. This barrier faced by women-owned firms trading across borders, IFC is compounded by high interest rates or fees for trade finance conducted interviews with financial institutions and women and is ranked as the top challenge in Kenya and a primary entrepreneurs in three emerging economies with diverse concern in the other two countries. Such financial constraints trade profiles: Brazil, Kenya, and Nigeria. Interviews with not only hinder women entrepreneurs’ access to trade finance women entrepreneurs in these countries reveal a number of but also reflect broader gender-based disparities in the economic common challenges in accessing trade finance. Results are landscape. drawn from a sample of 70 women in Brazil, 60 in Kenya, and 85 Bureaucracy emerges as another major impediment in Nigeria, between 2021 and 2022. to accessing trade finance, with time-consuming bank While the literature on access to finance is well-established, processes being the foremost hurdle in Nigeria. This obstacle few studies have examined gender differences in access to highlights the capacity constraints within financial institutions trade finance. A notable recent contribution from the Asian and the undue burden placed on SMEs. Development Bank used two versions of its Company Survey on Alongside these structural challenges, pervasive knowledge Trade Finance,53 comparing access to finance between women- gaps exist. The lack of understanding, training, or education and male-led firms across 103 countries.54 For women-led firms, on trade finance instruments, which is ranked as a mid-level the results indicated a significantly more frequent requirement challenge among the many faced by women traders, indicates a of collateral, lower access to traditional banking facilities such further need for tailored capacity building initiatives. as lines of credit, and a reliance on informal funding sources. This disparity extends to application and rejection rates for trade The interviews are summarized in a comparative graph that finance in general: women are less inclined to apply for trade shows the prevalence of each challenge, demonstrating the finance and face much higher rejection rates by banks. common issues faced by women in accessing finance across Brazil, Kenya, and Nigeria (Figure 2). The collective experience In the IFC interviews, the requirement for collateral is cited as of women entrepreneurs in these countries highlights systemic the primary obstacle in accessing trade finance for women- issues with access to trade finance which, while critical for led firms, particularly in Brazil. Women-owned businesses women’s integration into global markets, remains out of reach struggle to meet the stringent collateral demands by banks, a for many. 53  The 2016 survey includes 791 companies from 98 countries, while the 2017 survey includes 1336 firms from 103 countries 54  Di Caprio et al., Women and Trade: Gender’s Impact on Trade Finance and Fintech, 2017 16 BANKING ON WOMEN WHO TRADE ACROSS BORDERS Figure 2.  The challenges faced by women entrepreneurs in accessing trade finance, based on interviews with 70 women in Brazil, 60 in Kenya, and 85 in Nigeria (1=least important, 5=most important). High interest or high Brazil fees for trade finance Kenya Nigeria Time consuming bureaucracy with banks High or difficult collateral requierement from banks Lack of knowledge, training or education on trade finance instruments Lack of credit score Excessive information requirements from banks 0 1 2 3 4 5 6 These challenges are common for all SMEs requiring trade finance, as identified in the IFC-World Trade Organization 2022 and 2023 reports.55 56 However, these barriers are more prominent and potentially have a greater impact for women-led businesses, as there is a convergence of obstacles for women to participate in trade.57 Source: IFC interviews with women entrepreneurs in Brazil, Kenya, and Nigeria. Quote from Brazilian woman entrepreneur: Quote from Kenyan woman entrepreneur: “Some of us found our way in digital “I was told you need to bring collateral banks as they are less bureaucratic – a title. However, this piece of land than the traditional ones.” was not very valuable, but I brought it. Then, I need to bring an [appraiser] Quote from Nigerian woman entrepreneur: which is a big cost.... Then was told I need to bring in documentation for “I rely more on friends, family and my car. The amount of money for e-commerce platforms for financing the car valuation was also high. The my business, as I have limited sad thing is, I still won’t be given the understanding on trade finance money! I have spent so much of my products offered by banks.” own money, and they still won’t [lend] it to me.” 55  IFC-World Trade Organization, Trade Finance in West Africa. A study of Côte d’Ivoire, Ghana, Nigeria, and Senegal, 2022 56  IFC-World Trade Organization, Trade Finance in the Mekong Region, 2023 57  World Bank, Women, Business, and the Law, 2023 BANKING ON WOMEN WHO TRADE ACROSS BORDERS 17 4.  SCALING UP TRADE FINANCE FOR WOMEN-OWNED FIRMS Expanding access to trade finance for women-led firms requires action across several interconnected areas to a) reduce the information deficit by mainstreaming receipts, collateral records, and credit information b) simplify and reduce the cost of financial instruments through digitization; c) promote the use of alternatives through fintech; and d) enhance uptake through capacity building for both firms and financial institutions. In this chapter, each aspect requiring action is examined in more detail and examples are provided that illustrate a variety of options available to development practitioners, development institutions, and governments. 18 BANKING ON WOMEN WHO TRADE ACROSS BORDERS Tackling the Information Deficit and De-Risking Collateral and Credit Records Failure to meet collateral requirement is a significant It has long been established that credit bureaus act as obstacle for women-owned firms seeking access to trade information brokers between firms and financial institutions, finance. Institutional frameworks are essential for allowing reducing information asymmetry and allowing firms to assets of various kinds and values to be used as collateral by leverage their credit history instead of collateral.59 However, financial institutions. One such framework is a collateral registry, the use of credit bureaus remains limited in emerging markets, where assets can be registered, and their value and ownership particularly those in Africa. Nevertheless, credit bureaus enhance verified by financial institutions. access to finance in countries where they exist,60 with potentially inclusive effects for access to finance for women-owned firms by Financial institutions require assurance that they can seize reducing dependence on inequitably distributed assets. assets and dispose of them easily in case of defaults. Without a collateral registry, it becomes challenging for banks to Policymakers play a crucial role in implementation of these determine the seniority of claims over pledged assets in cases frameworks, as the architecture for a well-functioning involving multiple creditors. Implementing a collateral registry credit reference system requires several components, would broaden the range of assets acceptable as collateral, including appropriate legislation enabling the creation of thereby enabling a greater number of women-owned firms to credit bureaus or registries to conduct the information qualify for trade finance that would otherwise be rejected. brokerage function. In addition, suitable legislation is required for the correct handling of sensitive consumer data to ensure Over the past decade, collateral registries have been confidentiality, data security, and consumer protection. established in many African countries. However, their impact on access to finance has been limited mainly due to Given these persistent challenges, it is crucial that women- implementation deficiencies, such as limited public awareness, led enterprises have alternatives to collateral. In trade inadequate monitoring capabilities by regulatory agencies, finance, there are multiple pathways available to bypass the and failure to actively target financially excluded segments like need for collateral through financial instruments which are women-owned businesses and microenterprises.58 often underused due to limited awareness of their existence or functionalities, combined with insufficient training on both the The requirement for collateral could be avoided if there are demand and supply sides (Figure 3). well-functioning credit registries or credit bureaus in place, which would enable women-owned firms to access unsecured credit. While collateral requirements are expected to become more manageable for financially excluded groups like women- owned firms with the establishment of collateral registries, the obstacles that such firms face will remain substantial given their often-limited control over assets. 58  Ouedraogo et al., It started in Ghana: Implementing Africa’s First Collateral Registry, 2012 59  Pagano and Jappelli, Information Sharing in Credit Markets, 1993 60  Triki and Gajigo, Credit bureaus and registries and access to finance: new evidence from 42 African countries, 2014 BANKING ON WOMEN WHO TRADE ACROSS BORDERS 19 Figure 3.  Multiple alternative methods for women-owned firms to potentially bypass or reduce collateral requirements in order to improve cash flow by obtaining early or advance payments. Transferrable letters of credit (L/Cs) – These are issued not necessarily on behalf of the woman-led enterprise itself, which appears simply as a ‘secondary beneficiary,’ eliminating the need for collateral for the L/C issuance. An example of a secondary beneficiary could be a retailer or broker. Supply chain finance/‘reversed factoring’ – Risk falls on the anchor buyer, relieving the supplier from the need to provide security. Consequently, the supplier can benefit from immediate payment (rather than deferred payment) based on the credit rating of the (larger) buyer. Red Clause and Green Clause L/Cs (initial drawdown) – Red Clause L/C: The importer is allowed to pay the exporter in advance (pre-shipment), in which case the negotiating bank should not require any security or evidence of the goods from the exporter. Green Clause L/C: Similar to the Red Clause L/C, but evidence of the goods can be provided by, for example, a warehouse receipt (common in commodity finance). Promissory note discounting – Instead of waiting to be paid by the buyer in 30, 60, or 90 days, the seller can discount promissory notes. Export L/C discounting – A financial institution buys the bills and pays the exporter prior to maturity against a discount. Assignment of proceeds – A legal mechanism by which the beneficiary of an L/C may pledge the proceeds of future drawings to a third party. The exporter can leverage this before receiving funds and the third party can be a supplier or vendor of the beneficiary. Receivables finance/factoring – The seller sells its invoice to a financial institution and obtains payment against a discount, based on its own credit risk. Bill avalization – The exporter can discount a bill, once avalized by the financial institution of the buyer. Collateral management/warehouse financing – Collateral based on the stored merchandise, used especially for agricultural commodities. This way of financing can be utilized both for importers and exporters according to their purchase/sale contract and the chosen payment option. 20 BANKING ON WOMEN WHO TRADE ACROSS BORDERS Two instruments, in particular, have the potential to improve access to trade finance for women trading firms: Warehouse receipts and supply chain finance. Financing based on Warehouse Receipts Supply Chain Finance Goods intended for import or export can be deposited in Supply chain finance (SCF) empowers sellers (suppliers) a warehouse for a fee, whereby the entity responsible for to access early payment, improving their cash flow and the warehouse issues a receipt confirming their presence. reducing their dependence on costly short-term financing The receipt can serve as collateral for a financial institution to options when engaging in value chain transactions. provide a loan to the seller. This option is particularly suited to Moreover, SCF allows buyers to strengthen their relationships commodity sellers facing limited access to pre-export financing with suppliers, mitigating the risk of disruptions by bolstering or to commodity importers seeking to expedite payment terms the financial strength of the sellers and improving their payment for delivery based on inventory. It is especially advantageous in terms. SCF also provides an opportunity for banks to develop the agricultural sector, where there is a significant concentration long-term relationships with anchor buyers (lead firms in value of women-owned firms. Warehouse receipts can also benefit chains) and to offer bundled financial products to multiple financially excluded women-owned firms as they are not beneficiaries. necessarily dependent on asset ownership, which often exhibits SCF includes a diverse set of financial instruments, which gender imbalance. The use of warehouse receipts as collateral can be categorized into two types: (1) invoice purchase-based has become widespread in Eastern European countries61 and has SCF products, typically used post shipment or delivery of goods since expanded significantly in Africa and South America. or services, and (2) loan-based SCF products, employed before The warehouse operator plays a crucial role in ensuring shipment or delivery. In most instances, SCF offers access to the acceptability of the warehouse receipt to financial competitive financing based on the financial and commercial institutions. Commercial banks require assurance regarding strength of large buyers (anchors), benefiting SMEs, particularly the presence, quality, and condition of goods in the warehouse, those that would otherwise struggle to obtain or afford trade necessitating a regulated warehouse sector. The regulatory finance independently. framework in the relevant country must include a vetting The global SCF market has experienced steady growth, process for warehouse operators to provide banks with the presenting women-led SME suppliers, sellers, and exporters necessary confidence.62 with an alternative to collateral provision, as the anchor In some countries, financing based on warehouse receipts buyer furnishes the collateral. represents a new and innovative mechanism that requires specific features to be in place. Authorities or third parties must regulate and supervise warehouses to uphold standards and enhance confidence in their operations among both banks and commodity traders. Legal reforms are necessary to facilitate banks’ ability to take possession of commodities in the event of default. In addition, raising awareness among banks is key for the incorporation of such reforms in their credit risk management practices. 61  Hollinger et al., The Use of Warehouse Receipt Finance in Agriculture in Transition Countries, 2009 62  Pasadilla, Regulatory Issues Affecting Trade and Supply Chain Finance, 2014 BANKING ON WOMEN WHO TRADE ACROSS BORDERS 21 Reducing Complexity and Cost: Digitization Paper-based processes still dominate trade finance Public entities, such as customs, play a pivotal role in cross- transactions. Examples include L/Cs, bills of lading, and border transactions, requiring government-level reforms insurance policies, among other documents. These paper- to support digitization efforts. E-government initiatives, based procedures are both time-consuming and expensive,63 including online portals and one-stop shops, can significantly particularly for SMEs, where women-owned firms are often propel efforts to digitize trade finance. For instance, the enabling concentrated. The costs associated with handling these of electronic submissions, signatures, and payments for taxes documents can constitute a substantial portion of the credit and fees can improve the efficiency of trade finance processes, these enterprises seek. As a result, processing small transactions particularly benefiting women-owned firms and SMEs facing is often perceived as unattractive for both firms and banks due to acute challenges in this area.64 the high costs and complexity involved. Legal reforms are equally imperative, as courts in many Digitization presents a solution to simplify these transaction countries only recognize paper documents for contract processes, thereby assisting smaller firms. By streamlining disputes in trade finance. Thus, amending laws to accept trade finance applications, digitization can foster more inclusive electronic documents and ensuring harmonization across financial outcomes, with women-owned businesses standing to jurisdictions is vital. benefit significantly. It is important to acknowledge that the impact of The digitization of trade finance can take various forms, technological change can be complex; while technological including the use of electronic platforms that automate advances have the potential to bring about overall processes and mitigate the errors commonly associated with improvements, they may also exacerbate existing disparities, paper handling. Enhanced digitization has also the potential to potentially increasing the financial exclusion of certain firms. broaden the range of goods and services traded across borders, This can occur because not every firm possesses sufficient offering opportunities for sectors with a higher representation of resources or capabilities to adopt modern technologies, with women-owned firms. smaller enterprises often at a disadvantage due to the relatively substantial investment required. Policymakers must recognize that digitization will not uniformly benefit all market players. Therefore, digital economy strategies in emerging economies should incorporate a gender perspective to mitigate existing disparities in access to trade finance. 63  International Chamber of Commerce, ICC Global Survey on Trade Finance, 2020 64  International Chamber of Commerce, ICC Global Survey on Trade Finance, 2020 22 BANKING ON WOMEN WHO TRADE ACROSS BORDERS Mainstream Alternatives Through Fintech Beyond digitization efforts to improve the efficiency of Providing a wider range of funding sources: Fintech complex paper-based trade finance operations, the rise enables firms to access a wider range of financing sources at in fintech firms leveraging modern technologies has the affordable rates. This can include direct peer-to-peer funding potential to increase access to trade finance for women- appeals and online-based platforms like crowdsourcing. Not owned firms and SMEs. While the effects of fintech can be only does this expand SMEs’ access to finance,67 but it also numerous, this section focuses primarily on the gender-sensitive promotes decentralized financial intermediation, potentially effects within the trade finance market, including assessing enhancing resilience to economic shocks. These new funding creditworthiness, offering innovative financing sources, and avenues, facilitated by fintech, are particularly relevant to the facilitating payments. trade finance market and entail fewer collateral requirements compared to borrowing from traditional banks.68 Facilitating creditworthiness assessments: A major Improved payment methods: Fintech can enhance the financial obstacle for SMEs in accessing finance lies in the information inclusion of women-owned businesses and SMEs by improving asymmetry between firms and creditors, complicating banks’ payment methods, with mobile phone payments as the most ability to accurately evaluate the creditworthiness of loan common example.69 While women generally have less access applicants. Fintech has begun addressing this challenge, an to mobile phone technologies than men, they often rely on emerging area with the potential to significantly impact the these technologies more, due to their lower mobility.70 Notably, trade finance market. Traditional banks typically rely on factors investments in mobile money transactions are dominated such as financial statements, credit history, and balance sheet largely by women-owned businesses in Africa for example.71 information, disadvantaging women-owned firms and SMEs. Initially limited to domestic remittances, mobile payments are However, data-driven credit scoring, made more cost-efficient increasingly being used for trade finance transactions involving by machine learning technologies that leverage big data, has parties in different cross-border jurisdictions.72 the potential to significantly improve SMEs’ access to finance.65 Indeed, compared to traditional banks, fintech banks that rely on this innovation are able to offer smaller loans, better suited to women-owned firms and SMEs, and achieve higher repayment rates.66 65  Cornelli et al., SME finance in Asia: Recent innovations in fintech credit, trade finance, and beyond, 2019 66  Huang et al., Fintech credit risk assessment for SMEs: Evidence from China, 2020 67  Abbasi et al., P2P lending Fintechs and SMEs’ access to finance, 2021 68  Beaumont and Vansteenberghe, Collateral Effects: The role of FinTech in Small Business Lending, 2022 69  Makina, The potential of FinTech in Enabling Financial Inclusion, 2019 70  World Bank and World Trade Organization, Women and Trade: The Role of Trade in Promoting Gender Equality, 2020 71  Islam and Muzi, Mobile Money and Investment by Women Businesses in Sub-Saharan Africa, 2020 72  Bersch et al., Fintech Potential for Remittance Transfers: A Central America Perspective, 2021 BANKING ON WOMEN WHO TRADE ACROSS BORDERS 23 Capacity Building for Firms and Banks This section discusses several areas with scope for capacity building aimed at women-led enterprises and financial institutions to help narrow the gender gap in accessing trade finance. The following initiatives should be coupled with efforts to improve market information accessibility, building connections among all market participants. This could include maintaining an updated database of local women-led enterprises, which investment promotion agencies within emerging economies can use to connect international entrants with local firms. Women-Led Enterprises Banks Women-owned SMEs often encounter unique challenges due Banks, especially local ones in emerging markets, are in need to their smaller scale, potential lack of financial expertise, of training to bridge the large gap in their readiness to adopt and limited access to advanced business management digital tools and strategies for trade finance. Currently, less techniques. Many women entrepreneurs start businesses out of than half of local banks have a digital plan in place, compared to necessity, rather than viewing them as opportunities for growth. 83% of international banks.77 Without a clear digital approach, The requirement for properly maintained business records banks cannot fully leverage new technological opportunities. and information often acts as a barrier to financing for these Training initiatives for banks should extend beyond digital women-owned firms, especially in trade finance with its detailed readiness to encompass adherence to international trade rules procedures. and better management of trade finance products. Many global organizations already offer such training to banks to improve Numerous initiatives have targeted improving business and their capabilities. Providing additional training to help local financial acumen among women-owned enterprises, with banks understand the specific challenges and needs of women- varying success rates. For example, in Vietnam, training has led and women-owned businesses can ensure that these often- resulted in improved investment returns and profits for women underserved groups receive the financial services they require. entrepreneurs.73 However, in Peru, similar training for women already involved with a microfinance institution did not lead to Capacity building for banks is more effective when increased sales, profit, or job creation.74 In Sri Lanka, although combined with training for women-led enterprises and the training enhanced business practices, it did not translate into implementation of a conducive regulatory framework. The higher profits.75 In Tanzania, training benefited both male and case study of women’s access to trade finance in Vietnam (Figure female entrepreneurs, yet men experienced more significant 4) illustrates how these initiatives can be integrated to drive gains.76 progress. Despite the mixed outcomes, the overall trend indicates that such training can enhance business operations, particularly for women. This represents a promising area for further investment in improving the trade finance market skills of women-owned businesses. It is worth noting that many of the studies mentioned previously involved clients of financial institutions, implying that these types of training are well-suited to the trade finance sector. This presents an opportunity for policymakers and financial institutions to collaborate on training specifically tailored to trade finance. 73  Bulte et al., Do gender and business trainings affect business outcomes? Experimental evidence from Vietnam, 2017 74  Karlan and Valdivia, Teaching entrepreneurship: Impact of business training on microfinance clients and institutions, 2011 75  de Mel et al., Business training and female enterprise start-up, growth, and dynamics: Experimental evidence from Sri Lanka, 2014 76  Berge and Garcia Pires, Measuring spillover effects from an entrepreneurship programme: Evidence from a field experiment in Tanzania, 2021 77  International Chamber of Commerce, ICC Global Survey on Trade Finance, 2020 24 BANKING ON WOMEN WHO TRADE ACROSS BORDERS Figure 4.  Case Study: Women’s Access to Trade Finance in Vietnam. Vietnam accounted for approximately 50% of all trade-related banking transactions involving women under IFC’s Global Trade Finance Program in FY23. In Vietnam, as in other developing economies, collateral—primarily in the form of land—poses a challenge for women-led enterprises: only 9% of land is owned by women, while 91% is owned by men (Rao 2011). A 2022 survey among IFC’s Vietnamese client banks highlighted the lack of capital and networking as the most significant obstacles for women-led companies engaged in international trade. Despite representing nearly a quarter of all businesses (24%) and despite similar business performance, women-owned SMEs are less likely than men-owned SMEs to secure bank loans; when they do, they typically receive smaller amounts with shorter tenors (Lambert 2022). However, Vietnam has emerged as a leading market for trade finance within IFC’s Banking on Women portfolio. The companies and banks that were surveyed reported between 6% and 30% of their profitable trade portfolio as being dedicated to trade finance for women-led businesses. This area has seen growth of between 50-100% in the last five years, during which time IFC and other public and private entities have actively provided support in the form of rebates, training, and capacity building awareness initiatives. Women comprise approximately 60% of the entry-level banking workforce in Vietnam (IFC 2021), which may contribute to improved access to bank lending for women. Several important initiatives have facilitated the expansion of banks’ portfolios: • Legislation: Vietnam took an important step in 2017 with the passage of the Law on Support for SMEs, defining women- owned SMEs and prioritizing them for government support measures. • Capacity building for women entrepreneurs: Various development finance institutions and business chambers in Vietnam have supported capacity building programs to enhance the skills of women entrepreneurs, aiding them in securing loans from banks and other capital providers. • Change in approach of financial institutions towards banking women-led businesses: Financial institutions have begun to create databases with gender-disaggregated data, prioritizing a women-focused strategy, and acknowledging the commercial benefits of this segment. BANKING ON WOMEN WHO TRADE ACROSS BORDERS 25 Blended Finance Blended finance has emerged as a transformative approach To enhance the accessibility and affordability of trade finance to empower women’s entrepreneurship, especially in for women entrepreneurs, donor funds can be strategically the area of trade. By merging private sector capital with applied to lower borrowing costs. Subsidized interest rates concessional funds and donor support, blended finance offers or guarantees can significantly affect the viability of loans for a promising solution for addressing the systemic barriers that women-led businesses by facilitating their participation in trade often hinder or prevent women-owned SMEs from accessing and commerce. A multi-donor facility can be instrumental in traditional financing. Implementing such strategies can result this effort. By providing risk capital and technical assistance, in more equitable financial inclusion and promote sustainable such a facility can bolster the confidence of financial institutions growth for women-led businesses in the global trade arena. in dealing with women-owned SMEs. It can serve as a risk- sharing partner, encouraging banks to engage more proactively A key strategy for scaling up trade finance for women-owned with women entrepreneurs. Moreover, constructing blended firms involves designing financial instruments tailored to finance vehicles with a first-loss layer can offer a safety net for their specific needs. Blended finance programs can mitigate the commercial investors. Development organizations often fund risk associated with lending to underserved segments, such as this layer, which can absorb initial losses and stimulate further women-led SMEs, thereby incentivizing financial institutions to investment from private entities that may be risk averse. extend credit facilities to these enterprises. Evidence from Turkey demonstrates the effectiveness of this approach, as both existing Finally, integrating gender-focused criteria and metrics into and new women entrepreneurs leverage such capital for growth portfolio analysis is essential. This approach ensures that and investment.78 financial institutions are aware of gender-specific financial behavioral trends within their portfolios, enabling them to tailor their offerings to meet the needs of their women-owned or women-led enterprises. In doing so, financial institutions can bridge the gender gap in trade finance while encouraging the development of a more inclusive financial ecosystem. 78  Aydin et al., Blended Finance and Female Entrepreneurship, 2023 26 BANKING ON WOMEN WHO TRADE ACROSS BORDERS 5.  RECOMMENDATIONS AND ACTION ITEMS This chapter provides recommendations and action items (Annex 1), which will benefit all SMEs requiring trade finance (as identified in IFC-World Trade Organization 2022; 2023), especially women-owned and women-led businesses facing a convergence of barriers to their participation in trade finance. To effectively address the challenges encountered by risks associated with engaging in trade finance with women entrepreneurs in accessing trade finance, a multi- women-led enterprises. Moreover, they can enhance faceted approach is essential. This report recommends the accessibility by offering more risk-sharing facilities, either following strategies, which collectively should assist in creating independently or through partnerships with development a more inclusive and accessible financial landscape for women finance institutions. entrepreneurs who trade across borders, ultimately promoting • Governments can contribute by improving the greater economic empowerment and gender equality: regulatory framework, including initiatives such as digitization, registration of invoices, collateral records, • Establishing collateral registries and credit bureaus as and credit information. They can also facilitate the information brokers can significantly reduce information approval of risk-sharing facilities within their jurisdictions. asymmetry, enabling women to demonstrate their • Development partners need to provide capacity creditworthiness more easily. training on both innovative and traditional trade finance • Leveraging supply chain finance can provide a vital instruments, expanding the use of blended finance to pathway, empowering both sellers and buyers, by address the weaknesses and risks facing women-owned using the creditworthiness of more established trading and women-led enterprises. partners. • Women-owned and women-led enterprises, including • The digitization of financial services is critical in SMEs, can participate more actively in industry reducing the complexity and costs associated with associations, sharing experiences and improving their these services, thereby expanding the range of services collective business case. accessible to women-led enterprises. • Collaborations between finance institutions, whether • Mainstreaming alternative financing options through with a development mandate or not, and governmental fintechs, by facilitating data-driven credit assessments bodies can mitigate risks, opening up training and expanding access to a variety of funding and payment opportunities, and raise awareness while providing a methods, can greatly benefit women entrepreneurs. forum to discuss potential solutions. • Capacity building for women-led and women-owned SMEs, coupled with awareness and training programs for banks on the specific needs and challenges faced by Lastly improving the perceived risk profile of women-owned women in accessing trade finance, is imperative. businesses is essential for increasing access to finance for women who trade across borders. Feasible approaches • Blending finance by combining public and private to support fairer credit risk assessment for women-owned funds to de-risk investments can create more favorable businesses include considering their historical low default rates, conditions for financing women-led enterprises. the short tenor of transactions, and the self-liquidating nature of trade itself. Moreover, recognizing the advantages of banking In enacting these strategies, all relevant stakeholders have a role women customers, particularly women-owned or women-led to play: businesses, is essential. Finally, legal encouragement for the digitization of processes and documents, including through • Financial institutions and banks can benefit from fintech firms and their platforms, would help narrow the gender training that is tailored to the specific needs and gap in access to trade finance. BANKING ON WOMEN WHO TRADE ACROSS BORDERS 27 BIBLIOGRAPHY Abbasi, K., A. Alam, N.A. Brohi, I.A. Brohi, and S. 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Washington DC and Geneva. https://www.ifc.org/content/dam/ ifc/doc/2022/report-trade-finance-in-west-africa.pdf BANKING ON WOMEN WHO TRADE ACROSS BORDERS 29 ANNEX 1: Recommendations to Stakeholders – Call to Action Responsible Party Recommendation / Action Related Challenge TRADE FINANCE PROVIDERS/FINANCIAL INSTITUTIONS 1 Restructure trade finance offerings to fit women’s Low take-up of loans by women-led enterprises reported top needs 2 Build greater presence in market through specialized Low take-up of loans by women-led enterprises outreach 3 Invest in gender-sensitivity training & gender diversity of Low take-up of loans by women-led enterprises bank staff to remove conscious and unconscious biases Inability to trace results of Women-led businesses (WLBs) 4 Institute gender-disaggregated data tracking and consequent difficulties in expanding this commercially attractive segment GOVERNMENTAL AND REGULATORY BODIES 1 Continue to build gender-equitable trade policies, WSMEs claim to have little access to Forex and therefore including increase of access to Forex particularly for cannot finance their cross-border trade WSMEs Access to trade finance due to complex and time- 2 Invest in digital finance & fintech consuming logistical and documentary processes 3 Continue to support public, as well as private-sector Difficulties in adapting to new technologies technology and digital finance 30 BANKING ON WOMEN WHO TRADE ACROSS BORDERS Responsible Party Recommendation / Action Related Challenge DEVELOPMENT FINANCE INSTITUTIONS Banks are hesitant to allow SMEs, particularly WSMEs, 1 Create new product solutions for risk sharing with WLBs access to trade finance 2 Partner with DFIs and donor facilities Low risk appetite per obligor per country 3 Create and/or enhance a global network comprising women business associations and relevant industry Low take-up of loans by women-led enterprises sectors and other stakeholders Lack of networking opportunities causes lack of business 4 Improve credit line access knowledge and acumen 5 Invest in regulatory advocacy on key issues facing women importers and exporters, including in relation to Rejection of loan requests the public sector and governments 6 Expand advisory services provided by financial Lack of adequate regulatory framework and offers of trade institutions finance to WLBs 7 Mobilize donor funding for training and external There is a significant need for WLBs and banks to train in partnerships to improve lending readiness use of trade finance instruments Insufficient liaison between women and industry 8 Partner directly with women’s entrepreneurship groups associations. Network of DFIs is too focused on banks. 9 Act as champion & advocate for Need for inspiring examples of successful gender- gender-disaggregated trade finance data disaggregated client data bases and loans Few (D) FIs are willing to take on SME, particularly WSME, 10 Develop blended finance instruments tailored to WSMEs risk BANKING ON WOMEN WHO TRADE ACROSS BORDERS 31 Responsible Party Recommendation / Action Related Challenge WOMEN LED BUSINESSES 1 Prepare a business plan Credit/loan rejection, including trade finance rejection 2 Prepare financial statements and optimize financial Need for financial track record and financial statements in records when desired, with assistance of (D)FI’s order to successfully apply for a loan 3 Reach out to financial providers, including private and Gaps in financial knowledge and experience in short term public banks, DFIs, export credit agencies, and insurers cross border finance Few WLBs per sector or per country currently reaching out, 4 Increase participation in associations and develop making the ticket size/opportunity for (D) FIs too small to networks consider 5 For WLB sellers, ascertain if there is a buyer in common with other (W)SMEs and propose a reversed factoring Lack of collateral/insufficient credit rating based on the credit rating of the buyer (versus the credit rating of the WLB) 6 Training in use of multiple trade finance options, which could alleviate the need for collateral. These could include transferable letters of credit, invoice financing, Lack of collateral, financial track record, or business plan warehouse financing, and possibly avalized draft or discounted promissory notes, partnering up with the contract partner. 32 BANKING ON WOMEN WHO TRADE ACROSS BORDERS Photo Credits Iwaria Inc. /Unsplash Cover Nyani Quarmyne 18 Arne Hoel / World Bank 8 Gevorg Grigoryan / IFC 20 Dominic Chavez / IFC 10 Photo Volcano / IstockPhoto 25 Abdoulaye Ndao 12 Maria Fleischmann / World Bank 26 Vincent Tremeau / World Bank 16 BANKING ON WOMEN WHO TRADE ACROSS BORDERS 33 International Finance Corporation 2121 Pennsylvania Avenue, NW Washington, DC 20433 USA April 2024