Since the beginning of time, women have been at a disadvantage when looking for financial loans. One reason is that women have less control over land and assets that can be used as traditional collateral. This puts a real damper on her ability to launch an enterprise or, even when she manages to launch one successfully, to take it to the next level.
In Africa, women’s entrepreneurial knack is self-evident to anyone who sets foot on the continent—just look at any roadside! So, this problem is likely quite costly and holding back development. Can we solve it somehow?
As it happens, the Entrepreneurial Finance Lab, an entity that spun off from Harvard’s Center for International Development in 2010, has developed a tool using something called “psychometric testing”, which measures personal characteristics such as knowledge, skills, education, abilities, attitudes and personality traits as a means to predict how likely it is a person will pay back a loan. And it is proving quite effective. Could this be a way to finally help find a solution for women who don’t have any credit history or hold formal title to assets that are traditionally accepted as collateral?
The World Bank Group’s Global Practice for Finance and Markets (GFMDR) started thinking seriously about this, and worked to see it if it could be integrated in a Bank-funded project in Ethiopia (the Women Entrepreneurship Development Project, US$50m). Francesco Strobbe leads the project team, and started to discuss the issue with us in the World Bank’s Africa Region Gender Innovation Lab (GIL). “I thought this was a great opportunity to test some innovative measures to see if we could reach a real breakthrough with much potential for women entrepreneurs—in Ethiopia and elsewhere.”