By Rashna Mahzabin
A win for Women Entrepreneurs
The participation of women in business is increasingly being recognized as fundamental to economic growth. With women representing half the labor force aged 15–49 in Bangladesh, accelerating entrepreneurship and access to finance will be pivotal to socio-economic development in the country. According to the Bangladesh Labor Force Survey of 2013, the participation rate of females (32.9%) is substantially lower than their male (81.7%) counterparts. Of the 7.8 million businesses in Bangladesh, 99.93% are cottage, micro, and small and medium enterprises (CMSMEs). However, the percentage that are women-owned (7.21%) is insignificant compared to those owned by men, and women account for only 17% of individuals who are employed by CMSMEs according to a 2011 survey. This low participation rate is the result of several economic and cultural barriers, but the greatest challenge facing women entrepreneurs in Bangladesh is access to finance.
Women entrepreneurship or a woman in businesses’ is a recent phenomenon in Bangladesh. Women entrepreneurs are mostly involved in small and medium enterprises (SMEs). Support to the SMEs and making them more women friendly, could go a long way towards overall development of the country.
Women in Bangladesh illustrate a unique trait of high-risk appetite and resilience driven entrepreneurship. In general, the expansion of businesses is correlated to wealth and development of an economy. However, 31.6% of total business owners are female in Bangladesh where the underlying entrepreneurial supporting conditions are not as healthy as that of the developed and many developing countries. The statistics was revealed in The Master Card Women Entrepreneurship Index 2017. The survey report also reveals that only 8.2% women own a business in India whereas it is 31.4% in Vietnam and 30.9% in China. Bangladesh is one of the two countries along with Uganda which illustrates one of the highest percentage of women business ownership. The similar result is evident in Female Entrepreneurship Index (FEI), where Bangladesh scored high in terms of innovativeness and willingness to start a business but scored low in labor force parity and access to formal finance.
Women entrepreneurs are still lagging behind in access to SME (small and medium enterprise) financing due to reluctance of banks. Total SME loan in the banking sector stood at Tk 7,44,102 crore as of September 2017 of which women borrowers enjoyed only 3.5 percent or Tk 26,400 crore, according to Bangladesh Bank data.
Various studies have shown that the constraints faced by women entrepreneurs include inadequate access to finance, lack of start-up capital, small size of capital, inadequate training facilities, lack of information and managerial experience, complexities in accessing formal credit, and legal and regulatory framework, various family and social taboos, barriers to market access, women-unfriendly transport and working conditions etc.
Among all these constraints, access to finance — to start a business or to expand an existing business — appears to be a dominant one. In the last couple of years, various public and private initiatives have been undertaken to solve the problems faced by women entrepreneurs including the constraints related to their access to finance.
Recently, the idea of collateral free loan for women entrepreneurs was pushed by National Board of Revenue on grounds that the non-performing loan rate is the lowest among women. It was suggested that the idea should be taken up to Bangladesh Bank by Bangladesh Women Chamber of Commerce and Industry and some related trade bodies.
Collateral is an asset that the borrower borrows against. If it is not repaid the lender has every right to take possession of the collateral asset. For example, while taking mortgage loans, the house may be pledged and if it is not repaid the bank seizes the house. Hence, a collateral free loan means that there is no asset or collateral pledged to borrow against.
According to the rules set by the Bangladesh Bank, any person who asks for a collateral-free loan needs two guarantors. One is from the family members and the other from outside the family, preferably a well off person with a good reputation. If the applicant is married, in majority of the cases, the spouse needs to be the guarantor. It becomes difficult for a separated woman to get guarantee from the husband. Majority of the women entrepreneurs face problems in getting a guarantor outside the family.
Collateral free loan gives flexibility to women entrepreneurs as one does not need any assets to mortgage. The application process is comparatively easier than other loans as one does not have to itemize assets used for collateral, nor does the lender have to value that collateral. Collateral free loans are easier to apply and accept.
There are many banks who are giving collateral free loans to women. In 2017 Bangladesh Bank has directed banks to provide Tk25 lakh loan to a woman entrepreneur without any collateral. The new entrepreneurs will also get collateral-free Tk10 lakh loans according to the 2017 declaration. Different organizations such as Standard Bank, IDLC, Lanka Bangla finance, Islami Bank, Mercantile Bank, Brac bank etc. have different schemes for collateral free loan women.
BRAC Bank is the largest financier of collateral free loan in the country with 50% market share in this segment. Impact Measurement Study on SME financing revealed that the bank had created more than 1.5 million new employments in the course of its Small Business Financing and played a pivotal role to the improvement of the standard of living of the borrowers. Since its inception in 2001, the bank has disbursed more than USD 5 billion to more than 650,000 SME entrepreneurs across the country and has contributed significantly, to the socio economic development of Bangladesh. Under project Ananya, Mercantile Bank gave up to 8 lac collateral free loan to women entrepreneurs. Meghna Nabarupa under Meghna Bank is envisaged to facilitate finance to women entrepreneurs having good performance as well as to finance potential women entrepreneurs. Meghna Nabarupa gives collateral free loan to women with at least 2 years’ experience in small segment. The collateral free loan is up to 50,000 to 10, 00,000 BDT. Lanka Bangla’s service AHONA is a collateral loan facility for small enterprises involved in trading, manufacturing, service, agriculture, non-farm rural activities, agro-based industries, and many other acceptable sectors spread all over Bangladesh marketed through their branches or other mobile sales teams/ RO/ARM/RMs the country. The product offers term loan or single payment loan facility for the purpose of business expansion, working capital finance, fixed asset purchase, advance payments and agriculture production/trading.
Apart from all the services available for women, still not many can access these loans. High default loan and fund diversion mainly accounted for the reluctance of banks in disbursing SME loan to female borrowers. Banks find many cases of fund diversion among women entrepreneurs. Lack of confidence in women entrepreneurs also accounted for reasons that make banks reluctant to finance them as the success rate is very low among female borrowers. Female borrowers started their business full of energy but they often could not continue for long due to the non-cooperation of their family and society. As a result, business started to decline in the middle of their journey turning them into a defaulter.
Collateral free loan has been a relief for many women for this reason as accessing loan has become easier but the root problem is still existing. Lack of training and knowledge within women has become a hiccup. Vocational training, market counselling, assisting business leadership has become essential. The Bangladesh Bank’s portfolio already has some avenues for women borrowers. The good name that women entrepreneurs have earned for themselves need to be recompensed with greater endowment of facilities. Diversity in business sector, which has long been looked as a monopoly ground for men is hard to penetrate for women socially and culturally. The boost the Bangladesh market needs is to create a diverse, and safe space based on the right execution of already taken protocols.
