Bridging the Entrepreneurial Gender Gap

Bridging the Entrepreneurial Gender Gap

Women own 36 percent of all registered businesses in the United States, but women-owned businesses, or WOBs, account for only 4 percent of U.S. business revenue and receive less than 5 percent of the bank financing available for small businesses.

Olympia De Castro of Community Investments Management, or CIM, is convinced that the small-business gender gap is a solvable problem. CIM, where Ms. De Castro is a partner focusing on strategy and investments, finances small businesses in the United States through a select group of innovative lenders. CIM builds partnerships with lenders who combine strong financial performance with a commitment to responsible, transparent, and borrower-centric lending philosophies. CIM also seeks to encourage better lending practices in the broader financial services industry both through advocacy and by the superior performance of its own carefully selected portfolio.

As Ms. De Castro sees it, supporting WOBs is good business. Although WOBs remain a minority in absolute terms, in relative terms, women have been starting businesses five times faster than the national average (which blends women-, men-, and mixed-owned businesses) since the 2008 financial crisis. Ms. De Castro says her own experience is typical: “I often find myself discussing financing options with driven women who run businesses and are seeking to expand and invest.” She also believes that the wave of female entrepreneurship may be in part a reaction to frustrations women experience in working for others. She cites the challenges that disproportionately affect women’s careers, especially child- and elder-care responsibilities that make it more difficult for women to nurture the professional networks upon which success depends in conventional career paths.

WOBs are for the most part in service sectors, accounting for a particularly large share of healthcare and education start-ups. Ms. De Castro repeatedly sees these scenarios at CIM, with borrowers ranging from home-care agencies and diagnostic labs to education firms such as schools and academic consulting agencies. The lack of collateral that characterizes such businesses, combined with the small size typical of WOBs (81 percent of WOBs bring in annual revenues under $50,000 versus 61 percent for male-owned businesses), mean that WOBs are chronically left out from traditional financial services and are forced to rely on credit-card financing or predatory loans.

Fintech, or technology-driven financial services, holds promise to expand quality financial products to women entrepreneurs, as it does for other underserved market segments. Improved data collection and analytics will help investors refine their decisions, potentially directing more capital to borrowers, like WOBs in service-sector start-ups, that might have been overlooked in the past. Mobile banking and other fintech delivery channels also increase efficiencies (and thus profits), further expanding investors’ and lenders’ addressable markets.

Ms. De Castro sees diversifying fintech as a challenge that requires a proactive solution. “Change requires advocates to call attention to the challenges and to lead, because it will not come naturally. It falls on leaders, both men and women, to take personal responsibility to enact a culture of diversity in their [fintech] firms.” What does that look like? “It involves breaking norms and redrawing lines, from flexible work arrangements to rethinking efforts around recruiting, mentoring, promoting, and retaining women.” She also stresses that it comes down to smart business. “It has been demonstrated that gender-diverse leadership and boards mean better balanced consideration in decision-making.”

Ms. De Castro notes that 1,200 new firms are launched by women every day in the United States alone, and she is among those who believe strongly in fintech’s potential to close the gender gap for the financing this wave of entrepreneurship will need. But fintech is a very recent phenomenon compared to financial services’ long history, and although fintech holds the potential to revolutionize the how of financial services, the what — people starting and running businesses that need investors — remains the same. Ms. De Castro’s own company remains focused on the “people” side of the equation, and she advocates for borrower-centricity for the industry as a whole. “[Despite] fintech’s great potential to address gaps in small-business lending with compelling solutions, to create a sustainable industry, the success of the borrower must be [investors’ and lenders’] central objective.”

This article was previously published on the Wall Street Journal’s Multipliers of Prosperity, in partnership with MetLife Foundation.

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