One in every three growth-oriented entrepreneurs globally is a woman. In developing countries, 17% of women are entrepreneurs, 35% aspire to become entrepreneurs and more than 50% of women see entrepreneurship as a path to a better future, compared with only 25% in high-income countries. Motivations for entrepreneurship differ, however. In the lower-income countries, female entrepreneurship emanates out of necessity due to job scarcity whereas in the high-income countries it is about business scalability.
Socioeconomic patterns may also differ; for instance, the Middle East and North Africa region has a lower participation of women in the formal labour force – 25% compared with 40% worldwide. In North Africa, 60% of women have no access to bank accounts and there is an 18 percentage point gender gap – the largest in the world. Meanwhile, in sub-Saharan Africa, 37% of women have a bank account, compared with 48% of men; a gap that has only widened in recent years, according to Global Entrepreneurship Monitor (GEM), a research outfit that collects data on entrepreneurship directly from individual entrepreneurs.
Women entrepreneurs face financial and education shortfalls
Women entrepreneurs tend to be poorer and less educated than their male peers and are located in households with lower income. This pattern also applies to high-income countries. Moreover, women are over-represented within small and new businesses. Relatively few African women are turning new businesses into established ones, with a few geographical exceptions. Limited business networks put women at a distinct disadvantage when it comes to growing a company. On average, women are less likely to have access to investor networks, know other entrepreneurs and/or invest in businesses – and at lower levels of investment when they do.
More than 50% of women in Angola and over 30% of women in Togo start new businesses compared with just 5% in Morocco and Iran. A higher percentage of women with high graduate degrees lead established businesses in Kuwait, Saudi Arabia, the United Arab Emirates and Morocco. Yet, women entrepreneurs, and the owners of established business, from Angola lead the pack when it comes to the highest female-to-male ratio in start-up businesses (see chart below). Elsewhere in Africa, Togo and Burkina Faso’s follow-on ratios are substantially lower.
In northern Middle Eastern countries, men are more than twice as likely than women to be running an established business. In the Gulf Council Countries, women are about half as likely as men to be running an established business, according to GEM’s Women’s Entrepreneurship Report 2020/21: Thriving Through Crisis.
A study from the African Development Bank Group found that women entrepreneurs’ perceptions about their business credit-worthiness contributes to the large gender financing gap in Africa, particularly in the north of the continent. Women entrepreneurs’ self-selection was not found to relate to the observed creditworthiness of their companies and is not merely a response to lenders’ discrimination or credit rationing through prohibitive interest rates, stringent credit arrangements or traditional collateral and guarantees.
This gender behavioural issue may relate to women entrepreneurs’ lack of financial literacy, also called capacity. The gender gap in financial literacy in North Africa has been estimated at 5% in Egypt, 9% in Mauritania, 10% in Algeria and 13% in Tunisia, according to research by Standard & Poor's Ratings Services Global Financial Literacy Survey.
With gender gap financing being one of the major obstacles female entrepreneurs face, there is an urgent need to direct more finance towards women to increase their participation in the economy, and this is across traditional sectors such as agriculture but also the information and communications technology (ICT) sectors that are high growth and have long been dominated by men. The gender gap in ICT in Africa is estimated at 23%, whereas in agriculture, women represent around 40% of the workforce and produce 70% of the continent’s food. Despite this, women only represent 15% of the continent's landholders. The gender financing gap in Africa in agriculture alone amounts to $15.6bn out of $42bn across business value chains.
Between 2019 and 2022, up to 97% of venture capital (VC) funding of Africa-based start-ups across all sectors went to male CEOs (see chart below). In 2022, VC funding was significantly higher (84%) for start-ups whose founders are exclusively male, 14% went to companies with mixed gender founders and 1.8% to female-founded start-ups.
Closing the gender financing gap will not only contribute towards achieving the fifth UN Sustainable Development Goal ("to achieve gender equality and empower all women and girls”), but start-ups with a female founder fill their workforces with 2.5 times more women, and companies with a female founder and a female executive typically hire six times more women, according to analysis by Kauffman Fellows. Additionally, female investors are more likely to invest in women-led companies focusing upon or providing solutions for markets targeting women.
How to scale female entrepreneurship
Hosted by the World Bank, the Women Entrepreneurs Finance Initiative 'We-Fi Theory of Change' has been formed to give women access to capital, networks, markets, financial knowledge and leadership.
One pioneer model is Malaysia’s Women Entrepreneur Financing Programme, which equips women with the knowledge and skills to enhance their strategic business ability in key functional areas, including monetary management, marketing, leadership and technology. The programme has helped close Malaysia’s gender gap in borrowing. Overall, supporting digital business solutions for remote banking and markets access and attracting more women investors and advisors into VC and business angel networks is expected to bridge the current finance access gap that afflicts female entrepreneurship in emerging economies.
Scaling the Middle East and Africa’s female entrepreneurship requires public and private gender-targeted policies to primarily focus on high-growth entrepreneurship, adopt a sector-specific approach by promoting women-led firms in the traditionally male-dominated sectors (such as ICT), and pursue an ecosystem approach by linking policy, legal and regulatory reforms with public and private investments to expand access to capital, markets, networks and information.
Policies should to be adjusted through research sponsoring and sustainable data collection to track the progress of female growth entrepreneurship using the following metrics; the ratio of female-led start-ups (from early stage to growth stage), the number of employees and expected hires as proximate indicators of growth orientation (although not directly correlated with profitability), the rate of female investors involved in formal and informal investments, and innovation (defined in terms of number of patents and/or business model solutions).
Data collection offers further opportunities to assess the impact, at the regional and/or continental levels, on start-ups scaling of the choice of venture’s location, founding team diversity, entrepreneurial strategies (organic growth versus unicorn-like growth), nascent sectorial ecosystems, the institutional environment, developing financial markets and societal effects.