Economic Opportunities for Women in the East Asia and Pacific Region
to lend to small businesses or to adapt services to their particular needs. One example of inflexibility on this score is Chinese banks’ unwillingness to adjust the collateral requirements that many SMEs cannot fulfill (World Bank 2007a). Country-level evidence from the region confirms the relationship of firm size to credit access. It is estimated that only 25 percent of small-scale businesses in Indonesia, for instance, have access to credit from formal financial institutions (World Bank 2006b). A survey of SMEs in Pacific Island countries indicates that business owners in Papua New Guinea perceive lenders as unwilling to lend to small businesses (IFC 2003). Women entrepreneurs in Vietnam also cited, as a major barrier, the inflexibility of traditional financial institutions in adapting to the needs of small businesses (IFC 2006b). Consequently, in Vietnam as well as in other East Asian and Pacific countries, women business owners are more likely to use informal sources of finance as getting a bank loan is generally feasible only for large businesses (IFC 2006b). Banks are not only unwilling to lend to smaller business, but also set credit conditions that smaller businesses, cannot meet. Fourth, on the supply side, collateral-based banking systems constrain access. The traditional emphasis on land as collateral is likely to disproportionately affect women not only because of their smaller average business size, but also because women generally have poorer access to land and property, and, as such, are less able to get credit through formal channels (ADB and World Bank 2008). Although part of the solution lies in gender-equal land rights (and sufficient implementation of these rights), developing credit systems that rely less on collateral is also important. The Philippine Department of Trade and Industry (DTI) acknowledged this in its SME Development Plan 2004–2010, which identified an overemphasis on collateral as a major barrier to SMEs’ access to credit. The constraints caused by a collateral-based lending system are also highlighted in a case study of a Filipino business woman, who, drawing on her own experience in starting a business and facing a complex and difficult credit environment, has helped other female entrepreneurs by establishing a franchise business model (see box 2.1). Fifth, the sheer cost of financing can also constrain the smaller enterprises led by women. While there is considerable variation across countries, the cost of financing appears to be particularly high in the region. Surveys of firms’ own views about the constraints on their growth reveal that high interest rates are perceived to be very binding. The largest proportion of firms in the region (72.5 percent) cite interest
Published on May 10, 2010
Published on May 10, 2010
The East Asia and Pacific region has made great progress, relative to other regions, with regard to both economic development and, specifica...