Challenges faced by Bangladeshi Women Entrepreneurs in Accessing Finance

Authored by: Jinat Jahan Khan

In Bangladesh, the Small and Medium-sized Enterprises (SMEs) sector employs more than 7.8 million people directly and about 3.2 million people indirectly. The SME sector contributes to one-fourth of Bangladesh’s GDP, and a decent portion of these SME owners are women (SME Foundation). However, many female entrepreneurs often face difficulties while operating their businesses. Even as basic as getting finance for businesses turn into a burden for them in many cases. The COVID-19 pandemic added more to their hurdles. As per a BRAC survey including 589 female business owners, 90% of them faced some sort of difficulties due to the COVID-19 pandemic such as the difficulty of getting finance, high-interest rate, strict lending rules, and so on. One-third of them were not able to operate their businesses, and two-thirds had no income source during this period (Biswas, 2022). In this article, we will discuss some of the most common issues that women entrepreneurs face while accessing finance for businesses.

Need for a personal guarantor

In Bangladesh, if a female entrepreneur takes bank loans for her business, she must be guaranteed by her spouse or father (Ahmed, 2014). The ultimate point is to have a male guarantor in order to take any loans or access any formal credit. They do not even accept female guarantors for these female entrepreneurs. Only if there is a male guarantor, banks believe that the female entrepreneur will be able to run the business and pay them back. Otherwise, they are less likely to believe in women’s competencies and ventures. On top of that, financial institutions are more unlikely to fund those activities that are not typically recognized to be run by women. Such gender bias eliminates many opportunities for women, and such exclusion in availing of loans is more common for those who are widows or separated from their families (Ahmed, 2014). Adding to these barriers, some commercial banks even want guarantors with decent financial conditions, requiring at least one guarantor to be a government job holder. However, many entrepreneurs may not have such connections or capacities to arrange so, let alone female ones. Most of the time, male entrepreneurs do not require to fulfill the overall condition of guarantors, whereas women do, on a mandatory basis (Chowdhury et al, 2018).

During the COVID-19 pandemic, the Government of Bangladesh announced a BDT 200 billion stimulus package for the SME sector of the country. However, by the end of 2021, only 5.59% of those who received stimulus packages were women. One of the reasons for such a scenario was that banks were reluctant to provide stimulus packages to those women entrepreneurs who did not have male guarantors at that time (The Financial Express, 2021). The overall scenario shows how women’s capability to run a business is often looked down upon.

Lack of legal documentation

Women entrepreneurs often have difficulties meeting the paperwork requirements of bank loans. Even for taking small loans or opening bank accounts, small entrepreneurs need to present documents such as income statement, balance sheet, tax identification number (TIN), business identification number (BIN), and so on, which demotivates them to avail of credit from the formal sources (The Business Standard, 2022). And the highly complex application process for bank loans discourages entrepreneurs to request credit. To access loans of only BDT 10-15 lakh, they need to meet stringent requirements such as TIN, BIN, and other legal documents (The Daily Star, 2022).

Even if some women entrepreneurs are able to stay motivated in availing loans with such documentary requirements, due to many gender-based complications such as lack of mobility, and socio-cultural constraints, many are not always able to fulfill all of the requirements. On the contrary, men are granted loans that can be more than 50% higher, and they do not require to face this much complexity as their female counterpart face (Ahmed, 2014). In Bangladesh, due to social norms, many women entrepreneurs are home-based. Consequently, they lack access or capacity to come up with the huge number of documents needed to apply for loans. The lack of alternative and flexible requirements and regulatory procedures makes the situation worse for women entrepreneurs (Biswas, 2022).

Lack of access to information and training 

Similar to the previous barrier, this is also associated with the lack of mobility and the socio-cultural constraints faced by women entrepreneurs. Small women entrepreneurs often do not have enough knowledge on how to apply for a loan or government incentive. It is found that around 47.84% of female entrepreneurs do not know about the available government incentives for them, and they do not even have any idea about how to apply for such incentives (The Business Standard, 2022). According to a study conducted by BRAC, four in every five women entrepreneurs are unaware of any incentives or stimulus packages. And even if they get to know about any of these, stringent regulatory requirements and a patriarchal mindset block the road to getting those benefits. For instance, female entrepreneurs are often advised to hire men to deal with bank loans or other official work (Biswas, 2022).

Another issue is that there are still not enough training programs available for women entrepreneurs (Biswas, 2022). Prior studies found that higher education and formal training programs provide better foundations for women in order to develop their entrepreneurial skills. But both gender-segregated education and conventional thinking prevent many women to gain managerial and technological knowledge to operate a business. It leads women entrepreneurs to lag behind in decision-making in their own businesses (Brush et al., 2014; Zolin et al., 2013). Moreover, a lack of technological and financial knowledge keeps these women leaders in a disadvantageous position in terms of accessing finance.

For enabling women entrepreneurs to have easier access to finance, it is important to provide necessary education and training to them and make the legal procedure and documentation more accessible and simplified. These will facilitate the process of building a women entrepreneurship-friendly ecosystem and ease the process of running a business for women entrepreneurs. Otherwise, women in the entrepreneurial sector may lag behind.

References

Ahmed, M. U. (2014). Women entrepreneurship development in the small and medium enterprises in Bangladesh: Prospects, realities and policies. International Journal of SME Development, 1(1), 1–32. www.smef.org.bd

Biswas, S. (2022) Upskilling, Financial Access Can Boost Women Entrepreneurship in Bangladesh, The Daily Star. Available at: https://www.thedailystar.net/opinion/views/news/upskilling-financial-access-can-boost-women-entrepreneurship-bangladesh-3117696 (Accessed: December 8, 2022)

Brush, C. G., De Bruin, A., & Welter, F. (2014). Advancing theory development in venture creation: Signposts for understanding gender. www.researchgate.net/publication/268211647. doi: 10.4337/9781782544616.00008

Chowdhury, T.Y., Yeasmin, A. and Ahmed, Z. (2018) “Perception of women entrepreneurs to accessing Bank Credit,” Journal of Global Entrepreneurship Research, 8(1). Available at: https://doi.org/10.1186/s40497-018-0119-1

Give collateral-free loans to women entrepreneurs (2022) The Daily Star. Available at: https://www.thedailystar.net/business/economy/news/give-collateral-free-loans-women-entrepreneurs-2977846 (Accessed: December 8, 2022)

Lack of docs, database make difficult for woman entrepreneurs to access finance (2021) The Financial Express. Available at: https://thefinancialexpress.com.bd/public/print/lack-of-docs-database-make-difficult-for-woman-entrepreneurs-to-access-finance-1636346341 (Accessed: December 8, 2022)

Women entrepreneurs seek easy term loan from Banks (2022) The Business Standard. Available at: https://www.tbsnews.net/economy/women-entrepreneurs-seek-easy-term-loan-banks-427578 (Accessed: December 8, 2022)

Zolin, R., Stuetzer, M., & Watson, J. (2013). Challenging the female underperformance hypothesis. International Journal of Gender and Entrepreneurship, 5(2), 116–129. https://doi.org/10.1108/17566261311328819