Trade finance banks must grow their use of collateral registries, digital solutions and alternative forms of funding for women-owned businesses, a new study claims, as such firms are disproportionately shunned by the market.

In a study published this week, which canvasses the views of dozens of entrepreneurs in Kenya, Nigeria and Brazil, the International Finance Corporation (IFC) finds women-owned companies are far more likely than their male-led counterparts to suffer from trade finance access issues.

Globally, the trade finance gap – the difference between demand and supply from banks, non-bank financiers and development institutions – is estimated to stand at US$2.5tn. SMEs, often in emerging markets, tend to struggle most acutely from a lack of access to such products.

Yet according to the IFC, part of the World Bank Group, several factors mean women-owned export and import companies face “even greater challenges”.

“When we think that half of SMEs have no proper access to trade finance, we estimate that number is probably 70% for women-owned or women-led SMEs,” says Nathalie Louat, global director for trade and supply chain finance at the IFC.

Speaking to GTR on the sidelines of the IFC Global Trade Partners Meeting in Barcelona this week, she says it is “even harder” for women-led firms because of issues around their “legal rights to own a business, to own collateral, or to have negotiation power with their banks”.

“In many of the countries we work with, it’s a significant problem,” she says.

In all, the IFC interviewed over 200 women in Brazil, Kenya and Nigeria to understand the financial difficulties and common challenges encountered by women involved in trade.

The requirement for collateral emerged as the “primary obstacle” to accessing trade finance, the IFC says, with women-owned businesses in all three nations struggling to meet “stringent” bank demands.

“I was told you need to bring collateral – a title,” one Kenyan business owner is quoted as saying in the report.

“This piece of land was not very valuable, but I brought it. Then, I need to bring an [appraiser] which is a big cost…. Then was told I need to bring in documentation for my car. The amount of money for the car valuation was also high. The sad thing is, I still won’t be given the money! I have spent so much of my own money, and they still won’t [lend] it to me.”

According to the IFC, women-owned businesses are typically smaller, which also limits access to trade finance.

And because trade transactions are often more complex to process than other forms of bank funding, due to their cross-border nature, lenders typically require a relatively high minimum deal size.

This poses challenges for women-owned firms, which are “disproportionately represented” among medium, small and very small enterprises, the IFC says.

In Africa, the average value of a letter of credit (LC) — the most widely used trade finance instrument — is approximately US$2mn, which “far surpasses” the range demanded by most SMEs, the IFC says.

“To provide context, the average general-purpose loan for micro, small, and medium enterprises is $1,267, $21,438, and $133,000, respectively.”

There is also an “absence” of market information about MSMEs in emerging markets such as Africa, which can cause issues, especially against a backdrop of tightening anti-money laundering and know-your-customer requirements.

“Commercial banks often have difficulties in assessing the creditworthiness of SME trade finance applicants due to their limited track record, credit history, and lack of published financial information,” the IFC says.

At the same time, trade finance access is acutely strained in sectors with a higher concentration of women-owned firms, including agriculture and asset-light industries such as retail.

The IFC is now urging governments and the trade finance industry to adopt various measures aimed at boosting funding for women-owned SMEs.

It suggests policymakers in emerging markets, such as in Sub-Saharan Africa, should encourage greater usage of “well-functioning credit registries or credit bureaus”.

The use of credit bureaus remains “limited” in developing countries, yet by providing banks with company data, women-led businesses could leverage their credit history instead of collateral.

Greater use of warehouse receipt financing, as well as products such as supply chain finance, transferrable LCs and promissory note discounting that “bypass the need for collateral” could also address the imbalance.

Digitalising trade documents – such as LCs and bills of lading – would also cut processing times and costs on small transactions that today are perceived as unattractive for both firms and banks.

According to the IFC, boosting trade finance could unleash significant economic benefits for women, as businesses involved in trade create “better, higher-wage jobs for all workers”.

Today, women-led companies account for just 15% of exporting companies globally, it notes.

Additional reporting by John Basquill