Financial inclusion, inclusive entrepreneurship, and alternative financing options

Abstract

Financial inclusion is a key economic objective for many countries, particularly developing countries, where research findings agree that financial inclusion is directly linked to poverty. According to the World Bank, financial inclusion, which refers to broad access to financial services, is defined as the absence of tariff or non-tariff barriers to the use of financial services. This question remains a priority and is included in the means to achieve nearly half of the sustainable development objectives of the United Nations, especially since traditional banking methods to address financial inclusion in developing countries are not working effectively (Isukul and Tantua 2021). Even more importantly, the social advancement and reduction in income inequalities that financial inclusion is meant to reinforce, are still not present in many low-income countries. On the contrary, financial exclusion amplifies the already perceptible gender gap on the economic front: households headed by women are 8% less likely to access a formal account compared to their male counterparts, and female-headed businesses use 20% fewer loans than male-headed businesses in less developed countries (Ghosh and Vinod 2017). Formal financial institutions have rigid and specific requirements, such as collateral and proof of residency, that women entrepreneurs are generally unlikely to meet. This is partly due to land or property rights, and cultural norms that discriminate against them. Another reason why women entrepreneurs face great difficulty in entering the formal financial network is the relationship between women entrepreneurs and bankers, which can suffer from stereotypes and discrimination. As a result, most women business owners largely depend on self-financing during the start-up period of their business. The financial exclusion of female entrepreneurs can deprive their businesses of means to take advantage of business opportunities, or to withstand systemic or business-specific shocks (Zogning 2021). Many countries have concluded that supporting women entrepreneurs remains a vital issue and one way to do this is to guarantee their financial access and use of high-quality formal financial services. This is especially true given that female entrepreneurship is considered a common thread for economic and social transformation, because of the critical role that these entrepreneurs play at the household and community levels.