Why credit will never close the financial inclusion gender gap
By Rani Deshpande
The gender gap in financial inclusion arises just when women are poised to become full users of financial services: during young adulthood. Much effort to close the gender gap has focused on enabling better access to credit for women—but research across sub-Saharan Africa has shown that many young women don’t want loans. In this blog series by Rani Deshpande, we listen to young women from Ghana, Tanzania, and Uganda speak about what they actually need in terms of financial services, and explore how the financial system can be redesigned to serve those who have been consistently overlooked.
Launching without loans
In low-income countries, many of the transitions that fundamentally shape women’s trajectories – leaving school, entering the workforce, partnering, having children – occur between roughly the ages of 15 and 24. Equipping them with the supports and tools they need to successfully manage these changes is critical: not only to their own outcomes, but also those of successive generations.
Financial services can play an integral role in supporting young women to manage these transitions. Facilities to send and receive money, build capital, and manage financial risk can enhance the impact of supports in other areas including livelihoods, psychosocial well-being, and education.
And yet it is just as young women start taking on more economic and family responsibilities, in early adulthood, that they start lagging further behind young men in access to and usage of these tools. Nor is catching up likely, as women’s financial inclusion plateaus soon after age 24. Despite significant progress in narrowing the financial inclusion gender gap, this dynamic keeps it stubbornly in place.
Why do some young women remain excluded from the financial system? Recent research across multiple countries suggests it may be because the financial system, as well as many initiatives to expand its reach, are just not leading with what young women want. Much of the effort dedicated to financially including women has focused on credit, as the key to both client- and provider-level success. But in-depth interviews across Ghana, Tanzania, and Uganda revealed that a substantial number of young women simply don’t want loans.
Interviews across Ghana, Tanzania, and Uganda revealed that a substantial number of young women simply don’t want loans.
Take Mwanahidi in Tanzania. At only 24, she opened a shop selling household essentials using money she had already saved up from farming. She wants to expand this business—but through her own savings, not credit. “I feel loans reduce my income,” she says, “and make me feel like I work for someone else.”
A 23-year-old fruit seller in Ghana also said she preferred not to take loans, but if she did, they would be from family. “I don’t like to take loans for business,” she stated. “I don’t take money from anyone except from my mother or brother…there is too much interest on it, so I don’t like it.”
An interviewee in Tanzania agreed that loans might be useful in some cases, but not at the point where most young women find themselves, at the very beginning of their economic journeys. “Loans should be taken when you already have a business. You take them to continue and improve, but they are not ideal for starting a new business.”
Twenty-three year-old Faridah from Uganda agreed with this (very rational, if conservative) financial choice. “I hear about mobile loans,” she says, “but personally I can’t afford them…because my profit is still low. The time for paying back may come when I don’t have any money to pay.”
Fear of the consequences in case of non-repayment was widespread among interviewees in all three countries. Several told us stories they had heard of or witnessed personally the psychological and financial damage from loans gone wrong.
“There was a woman in our area who went for a loan, and she couldn’t pay,” recalled one interviewee from Ghana. “They came there and anything she sold, they will be taking the money. After the woman closed, she was crying…Even my mom went for some, and she couldn’t pay, so she kept dodging. She went for GHC 2000 to invest in a tilapia business…. So later, anytime she sees any black car coming, she will start running, or she will hide. It was very stressful.”
The deep-seated credit aversion of young women across Ghana, Tanzania, and Uganda is therefore perhaps not surprising. Tahia from Uganda summed up the feelings of many when she remarked, “I can’t recommend anyone to go to the bank to get a loan. Because I have seen people on the run because of bank loans. And yet, when they were getting that loan, there were smiles on both sides.
37% of women aged 16-24 in Uganda, 20% in Tanzania, and a whopping 50% in Ghana earn their own incomes from trading, agriculture, or other production.
Not wanting loans does not mean, however, that young women are not entrepreneurial; indeed, according to FinScope surveys, 37% of women aged 16-24 in Uganda, 20% in Tanzania, and a whopping 50% in Ghana earn their own incomes from trading, agriculture, or other production.
So how do young women get the funds to start their businesses?
In the next blog, we’ll explore the savvy and resourceful strategies they use to launch themselves economically without a loan.
Rani Deshpande is an independent consultant with over twenty years of experience in financial inclusion and youth economic strengthening. Her recent research has focused on how financial inclusion can be leveraged to promote young women’s well-being, especially in sub-Saharan Africa. Her background includes management and technical roles at a range of large international organisations, as well as research and consulting work for financial inclusion funders, practitioner organisations, and think tanks.
