Women entrepreneurs are fast taking up space globally and more evidently on the African continent. It’s not uncommon to find female vendors every 10ft alongside roads and in trading centres. The world bank states that 58% of all African Small and Medium Enterprises (SMEs) are women-led. Women are not afraid to venture into new spaces that they were previously unknown to venture into. In the current Women in Agriculture Impact Investment (WAII) Facility call for applications, more than half of the over 100 applications received were from women that fully own businesses, making it evident that women have taken up entrepreneurship and embraced the idea of earning incomes to sustain their families in the absence of their male counterparts.
However, compared to male-led businesses, female enterprises record lower sales and have fewer employees (Eastern Trade and Development Bank, 2022). It also can’t be echoed enough that female-led enterprises face the challenge of access to finance due to social, and cultural norms. Part of the complexity of thriving in business for many of the females in the Women in Agriculture Impact Investment (WAII) Facility was a lack of access to affordable and flexible finance to sustain production and operations mostly because of the uncertainties of the agricultural value chain which hinders the scaling up-production and increase in profitability margins. Limited access to finance by female-led Agri-SMEs reduces their ability to invest in seasonal inputs, yet closing the gender gap in access to productive assets such as inputs could lead to a yield increase per household, which would not only benefit female farmers but also their entire family.
Even though women have made great strides in obtaining traditional financing, financial institutions perceive women as a greater risk in relation to the funding requirements than their male counterparts. Relatedly, women business owners globally tend to perceive that they have more difficulty in obtaining financing through traditional financing institutions. Regardless of these hindrances, most women in the WAII facility have expressed the importance of building strong relations with financial institutions to ensure that they understand their unique needs, how they shift over time, the constraints and challenges they face, and how their context influences the types of activities and products they are engaged with.
Financing of the Agricultural sector
African financial institutions are not prepared for the shift to financing subsistence agriculture and agro-industries (World Bank 2022). Agricultural loans are not only low but the high transactional costs across the agricultural value chains are very pronounced. This is worsened by the vulnerability of the sector to climate change which increases the risk to agricultural financing, in addition to market price fluctuations. Most manufacturers in Uganda are hesitant to make initial investments in equipment while micro finances are challenged with administering small-scale loans across sparsely populated rural areas (afiglobal, 2021). Based on our learnings from interacting with women in the Women in Agriculture Impact Investment (WAII) Facility, it is imperative that financial institutions develop approaches to address the specificities of agricultural markets and of female farmers. This approach development is crucial because the educational, socio-cultural, and legal constraints that women face combined with the specific life-stage transitions or disruptions that may compound the effect of those constraints on their agency means that women lead fundamentally different economic lives than men and therefore may need to be served differently by service providers.
Women and finance access
In addition to lacking agricultural extension services, women in agriculture have limited opportunities to engage with supply chains, in addition to the existing rigid social and cultural norms that hinder their success in business. It is estimated that there’s a 42 billion financing gap for women across different business value chains, with 15.6 billion in agriculture (ADB, 2019).
Collateral requirements for women in agriculture inhibit access to finances for women-led agri-businesses. Most women in Africa do not legally or customarily own land – the number one collateral requirement for agri-financing. According to some women in the WAII facility, societal expectations that require women to work on their husband’s plots of land before they can acquire their own have made it difficult for them to thrive in the agriculture business. More often than not, lenders view smallholder farmers as high risk, requiring collateral such as titled land, and proof of financial stability. Unfortunately, women have unequal access to land and property and are unbanked (World Bank reported that only 37% of women in sub-Saharan Africa own bank accounts – World Bank, 2017); hence, making them more unlikely to meet the collateral requirements of financial institutions.
The collateral requirements are a daunting task for the female- agri-entrepreneur, with land being the major hindrance. The gap between men and women in asset ownership is rather pervasive. About 16% of women in Uganda own land (Rugadya, 2010). Our customary law and practices do imply that a woman’s right to land ownership is significantly dependent on their relationship with her partner (Walker, 2002). This gender gap crosses beyond land to the ownership of homes or livestock and poultry for those that live on farmlands. Without the main production asset (land), it’s unlikely that a female entrepreneur will be in a position to access finance to scale her business.
Therefore, reducing the financing gap for women entrepreneurs is critical to the agricultural sector’s sustainability. Mitigating the challenge is a collective effort of impact investors, business advisors, financial institutions, and government agencies. If agriculture is truly the backbone of Africa’s economy, and women the biggest contributors to food security systems, then finding sustainable financing solutions for the Agri- SMEs is a pertinent issue worth immediate action.