Bridging the Finance Gap for Women Entrepreneurs

4. Boosting financial literacy

Abstract

While education and training programmes aimed at improving the financial literacy of women often demonstrate a positive impact, they need to address the broader structural barriers that impact women entrepreneurs’ access to capital in order to achieve greater financial inclusion.

Role of training in developing financial literacy skills

Human capital, comprising of the stock of knowledge, skills and professional competencies possessed by individuals, is considered vital for enhancing the competitiveness of firms (Mariz-Pérez, Mercedes Teijeiro-Álvarez and Teresa Garcia-Álvarez, 2012[1]). It is argued that given the same market conditions, differences in human capital would account for the ability of entrepreneurs to recognise and exploit opportunities (Jayawarna, Jones and Macpherson, 2011[2]).

Financial literacy is one of the crucial types of knowledge for entrepreneurs who are seeking resources to sustain or grow their activities. Financial literacy can be considered as the “combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well-being” (OECD-INFE, 2011[3]). It is important to distinguish financial literacy related to household and personal finances from financial literacy for business creation and management (OECD/EU, 2022[4]). The latter requires the skills and knowledge to:

• Understand financial products for business, including their relevance, costs and risks;

• Identify sources of start-up financing, including alternative forms and sources of finance;

• Anticipate future financial needs of the business under alternative scenarios;

• Assess the financial risks to which the business is exposed and prepare appropriate responses;

• Understand the decision-making process of finance providers, and thus appreciate how the business can become creditworthy or investment-ready; and

• Use financial information to analyse business performance and create policies and controls that optimise this.

Overall, women entrepreneurs tend to report lower levels of financial knowledge and financial management experiences than their male counterparts (Orser and Riding, 2020[5]). Moreover, in many developing country contexts and especially in rural areas, women entrepreneurs commonly lack financial literacy skills, and their digital financial literacy skills are often more limited.

Education and training programmes can, therefore, play a significant role in building women entrepreneurs’ confidence and self-efficacy through the skills they acquire (Bauer, 2011[6]; Martin, McNally and Kay, 2013[7]), while also acting as a legitimisation tool (Marlow and McAdam, 2015[8]). While financial training is key, the adoption of gender-blind training and education programmes that ignore the supply- and demand-side differences and barriers faces by women entrepreneurs in accessing financial resources are bound to be less effective. In the majority of cases, women entrepreneurs typically start with less resources and perceive higher barriers in accessing finance (Wright et al., 2015[9]) and such training programmes need to recognise these barriers.

Role of public policy

Public policy can boost financial literacy by introducing targeted interventions that complement mandatory financial education in formal educational programmes. Given the potential reach of fintech in addressing existing gender gaps, such training could also focus on developing digital financial literacy and changing attitudes towards the use of technology amongst women entrepreneurs. Community-based collaboration and partnerships are also shown to be an effective way of reaching underrepresented communities (Vorley et al., 2020[10]).

However, a focus solely on building individual capacity, while necessary, is not sufficient. A more holistic approach is needed to achieve financial inclusion. Public policy needs to address the structural barriers in capital markets. Providing financial literacy training as one means of accessing government loans and grants may provide a way of ensuring women entrepreneurs’ greater participation in accessing these resources. Taking measures to ensure the evaluation of training interventions and other support initiatives to determine their accessibility and effectiveness in addressing gender-specific barriers and challenges is also key.

Lessons from the policy cases

Three country-level policy insight notes draw attention to the complexities involved in boosting financial literacy in different contexts and heterogeneous groups of women entrepreneurs. While all three notes highlight the importance of providing financial literacy training, the need for collaboration amongst different stakeholders (India) and the potential for fintech in achieving greater inclusion (Mexico) are also emphasised. The policy note covering Canada also draws attention to the need to address structural biases and undertake increased gender-based analyses of existing financial literacy initiatives. The three notes highlight the following lessons:

1. Provide workshops and training to improve financial awareness and digital financial skills as a complement to existing academic and education programmes. Such training could also raise awareness about existing structural biases and challenges that impede women’s access to financial resources among trainers, educators and other stakeholders.

2. Establish policies that can address existing barriers and challenges at the broader societal level. This can include, for example, incorporating financial literacy as a key component of entrepreneurship support policies, providing guidelines to inform financial literacy education and offering training programmes. Evaluating these initiatives is also key to ensuring their effectiveness.

3. Increase collaborations and partnerships with financial and educational institutions in order to provide access to resources such as training, mentors and role models to women entrepreneurs in rural areas or under-represented communities.

References

[6] Bauer, K. (2011), “Training Women for Success: An Evaluation of Entrepreneurship Training Programs in Vermont, USA”, Journal of Entrepreneurship Education, Vol. 14.

[2] Jayawarna, D., O. Jones and A. Macpherson (2011), “New business creation and regional development: Enhancing resource acquisition in areas of social deprivation”, Entrepreneurship & Regional Development, Vol. 23/9-10, pp. 735-761, https://doi.org/10.1080/08985626.2010.520337.

[1] Mariz-Pérez, R., M. Mercedes Teijeiro-Álvarez and M. Teresa Garcia-Álvarez (2012), “The Relevance of Human Capital as a Driver for Innovation”, Cuadernos de Economia, Vol. 35/98, pp. 68-76.

[8] Marlow, S. and M. McAdam (2015), “Incubation or Induction? Gendered Identity Work in the Context of Technology Business Incubation”, Entrepreneurship Theory and Practice, Vol. 39/4, pp. 791-816, https://doi.org/10.1111/etap.12062.

[7] Martin, B., J. McNally and M. Kay (2013), “Examining the formation of human capital in entrepreneurship: A meta-analysis of entrepreneurship education outcomes”, Journal of Business Venturing, Vol. 28/2, pp. 211-224, https://doi.org/10.1016/j.jbusvent.2012.03.002.

[4] OECD/EU (2022), Policy brief on access to finance for inclusive and social entrepreneurship: What role can fintech and financial literacy play?, OECD Publishing, Paris.

[3] OECD-INFE (2011), Measuring Financial Literacy: Questionnaire and Guidance Notes for Conducting an Internationally Comparable Survey of Financial Literacy, https://www.oecd.org/finance/financial-education/49319977.pdf.

[5] Orser, B. and A. Riding (2020), Financial Knowledge & Financial Confidence—Closing Gender Gaps in Financing Canadian Small Businesses, The Scotiabank Women Initiative, Scotiabank Knowledge Centre, https://www.scotiabank.com/women-initiative/ca/en/posts.financials.articles.gender-research.html (accessed on 27 September 2024).

[10] Vorley, T. et al. (2020), Supporting Diversity and Inclusion in Innovation, https://www.gov.uk/government/publications/supporting-diversity-and-inclusion-in-innovation-study (accessed on 25 September 2024).

[9] Wright, M. et al. (2015), “Joining the dots: Building the evidence base for SME growth policy”, International Small Business Journal: Researching Entrepreneurship, Vol. 33/1, pp. 3-11, https://doi.org/10.1177/0266242614558316.