Women entrepreneurs key to accelerating financial inclusion in the Philippines

DURING a visit to Manila last year, I spent time with three inspiring women entrepreneurs, Bambi Sia, Jenny Yrasuegui, and Linda Moya. I was greatly impressed by their determination and sense of duty not just to their clients but also to their employees. In a country where over 99% of registered businesses are considered micro, small and medium enterprises (MSMEs), small business owners like Bambi, Jenny, and Linda are truly the lifeblood of the nation.

In the bigger picture of global emerging markets, they also represent an engine of growth whose full potential remains unrealized. Women own or run more than a third of all small and medium enterprises (SMEs) in emerging markets. Yet one of the biggest barriers to their growth is lack of finance — amounting to an estimated $1.48 trillion for women-owned SMEs. When women-owned enterprises lack support to grow, the entire country misses out on inclusive development and shared prosperity.

That is why a concerted focus on women-owned businesses is vital for the Philippines’ future. The good news is that despite enduring the shocks of the COVID-19 pandemic and other subsequent global headwinds, the Philippines was the fastest growing economy in Southeast Asia, expanding 5.9% in the third quarter of 2023. In fact, the World Bank is projecting growth of at least 5.8% this year.

Much of this tenacity can be attributed to the government’s efforts to ramp up financial inclusion. According to the Financial Inclusion Survey (2021) by the Bangko Sentral ng Pilipinas (BSP), the number of adult Filipinos with bank accounts almost doubled in just two years to 56% of the population, spurred by the pandemic and accelerated use of digital payments. However, the share of borrowers sourcing their loans from banks stood at only 4%, just above pawnshops. Half of adult Filipinos perceived that borrowing from formal institutions was difficult. Across formal institutions, the top reasons provided on the perceived difficulty were lack of documentation, IDs, or collateral, among others. Many would rather bear the burden of predatory interest rates than walk into a bank’s branch office.

This can change if financial institutions stop overlooking women-owned businesses, a strategic customer segment. Better addressing their needs can unlock tremendous growth potential. Data show there is a strong business case for financing women-owned SMEs. They are known to be profitable clients while being averse to risks and having lower default rates than their male counterparts.

To optimize this untapped potential, financial institutions need to think unconventionally. They need to find innovative delivery channels to address the barriers that women entrepreneurs typically face. Additionally, a simpler loan application procedure, flexible collateral requirements, or alternative lending conditions are key to serving a high-potential yet underserved market. Training bank staff and helping them overcome unconscious bias is equally important.

It is a win-win situation for financial institutions as well. Our experience shows that when financial institutions diversify product offerings and improve loan procedures, they usually see a return on their investment in one to two years with the acquisition of new clients and a deeper engagement with existing clients. We have also seen that when financial institutions provide non-financial services to women entrepreneurs, the returns are greater than providing those services to men.

The women entrepreneurs I met in Manila told me the loans they were granted through Esquire Financing, an IFC-supported financial institution focused on supporting MSMEs, not only tided them over but gave them enough room to scale up. As a result, we are doubling down this year. We will work more closely with the local financial industry to bring more people into the fold.

Riccardo Puliti is regional vice-president of Asia and the Pacific at the International Finance Corp.