Using Digitalization to Support Financing of Women-owned Businesses in the Pacific Islands

At the most basic level, women require access to a simple trinity of factors to engage in the digital economy: an account, a phone and a cash-in cash-out (CICO) network. The financial inclusion community tends to focus on the gender gap for accounts, but there is also a significant gap around phone ownership and usage.

Despite the recognized importance of the SME sector globally, the percentage of WSMEs thereof remains considerably small, and total bank lending to this sector stands only at 18.7% in the region. The global credit gap for lending to WSMEs is enormous, totaling to an estimated $1.7 trillion.  Financial institutions face challenges servicing this market segment, relying still heavily on traditional lending practices with non-differentiated approaches.

To provide an example of the Pacific, Papua New Guinea (PNG) has the highest gender gap in financial inclusion in the region; women are 29% less likely to have access to formal financial services and that gap appears to be widening. Poverty levels, sociocultural norms and consequent disparities in literacy and employment are major drivers of the gender gap in financial inclusion in PNG. Women have limited economic opportunities and lower levels of literacy than men. As a result, they have limited awareness of financial services, particularly formal financial services. Out of the ~50,000 registered SMEs, only 8% are women-owned. Consequently, there is an urgent need for more equitable financial inclusion of women and WSMEs in PNG.

The cost of reaching and serving under/unbanked communities, unreliable network coverage and insufficient capital for building innovative business models has resulted in limited effort from traditional financial service providers to expand and tailor their services to WSMEs. Some efforts are done by Microbanks, supporting women and the informal sector.

There has been progress in financial inclusion. However, there remains considerable room for improvement, particularly in the inclusion of women’s businesses. First, the lack of collective action continues to limit financial awareness, making it difficult to drive demand for financial services. Second, poor mobile network signal frequently causes digital transactions to fail, hampering the growth in demand that would justify investment in connective infrastructure to extend the reach of financial services. Third, there is inadequate funding and incentive for financial institutions to drive and scale the inclusion agenda.

As mentioned above, constraints faced by WSMEs growing their businesses and accessing financing have been largely documented. Addressing this challenge becomes even more relevant in the ongoing pandemic. Many small women’s businesses have lost their incomes and often do not have the necessary cash reserves to survive for a longer period. A survey on the impact of COVID-19 on women’s businesses in PNG has for example found that 40.9% of smaller or semi-formal businesses have reported a temporary halt in operations.

ADB has worked with governments in respective countries to address immediate challenges due to the pandemic but also more broadly has supported governments that enacted a series of policy and regulatory reforms to support business development, which have had some direct positive spillovers for women. For example, through ADB’s Private Sector Development Initiative (PSDI), governments across the region have introduced secured transactions laws (Fiji, PNG, Vanuatu, Tonga, Solomon Islands), online business registries (Samoa, Solomon Islands, Tonga, Vanuatu), and developed policies on public-private partnerships (PNG, Fiji, Tonga). In Fiji, the Fiji Development Bank and the National Centre for Small and Micro Enterprise Development top-up loans to small businesses (up to $500) provided that at least 40% of the loan is obtained from other financial institutions. However, programs targeting women’s businesses have tended to focus on microenterprise support such as that offered by the Fiji Ministry of Women, Children and Poverty Alleviation, which provides grants of up to $2,500 to individuals or groups of women working collectively to start up small informal businesses. More needs to be done to support small and medium enterprises which have growth potential.

For further information see:

• Women and Business in the Pacific, ADB (2018)
• Innovative Financial Products and Services for Women in Asia and the Pacific, ADB (2020)
• Strengthening Access to Finance for Women-Owned SMEs in Developing Countries, IFC (2011)