In a key finding from the Africa Human Development Report 2016, it is estimated that total annual economic losses due to gender inequality in the labour market have averaged US$95 billion per year since 2010 in sub-Saharan Africa and could be as high as US$105 billion, or 6 percent of the region’s GDP in 2014.
What the report makes clear is the fact that countries which invest more in gender equality and women’s empowerment are outperforming their peers in terms of human development. To ensure Africa’s growth, women must have the right tools at hand to play a transformative role in the continent’s growth. The report calls on governments, civil society the private sector and international finance institutions to collaborate and formulate consistent agendas that will allow women to gain control over economic and environmental assets that can profoundly improve their lives. Among the prominent obstacles facing women on the continent in realizing their full potential, is the critical issue of finance.
Despite the fact that African banks have enjoyed sizable earnings over the past decade, many are seeking to maximize value through cost-cutting and lower risk tolerance. The consequence is that there is little appetite for lending to small and medium-sized enterprises and even fewer women entrepreneurs have access to capital. While it may be counter-intuitive, in boosting their own profitability banks are in fact starving national economic growth in general and limiting the potential of women entrepreneurs to contribute to African communities and the economy in particular. The results are clear to see, the pool of available loan capital across Africa remains inadequate and the potential economic and social benefits remain largely unrealized.
However, there is a reason to be hopeful with a number of exciting innovations in the offing. Today, Canadian Finance Minister Bill Morneau announced Canada’s intention to join the newly created Asia Infrastructure Investment Bank (AIIB) while accompanying Prime Minister Justin Trudeau’s on a state visit to People’s Republic of China. Closer to Africa, countries belonging to the BRICS (Brazil, Russia, India, China & South Africa) have established yet another multilateral lending agency known as the New Development Bank whose first regional office is being established in Johannesburg. Both institutions were founded based on the belief that the current financing and investment models are inadequate in meeting investment needs of developing countries. These initiatives coupled with the emergence of approaches such as Blended Finance and Impact Investing have undoubtedly provided a jolt to the “Washington Consensus” and there is today more than ever before a renewed interest to innovate in this space.
How then could an African Women’s Investment Bank make a real difference in the lives of women across Africa? There are a number of promising examples of “development lending” products that provide non-traditional solutions to entrepreneurs in need of capital to create new businesses or maintain or expand existing ones. This involves approving loan applications on the basis of typical financial considerations while also taking into account the entrepreneurs track record and the potential for positive social or community outcomes, and evaluating social outcomes resulting from the loan portfolio over the long term.
The potential of this approach to lending has been proven at the micro level. The time has come to take this idea to scale and create an African Women Investment Bank while also opening women’s investment windows in existing International Development Finance Institutions. With the right kind of capital, African firms can be enabled to compete effectively in a global marketplace.
“We need to bring innovation to the …..market and create companies that later transfer skills to new managers that can boost the growth and bring firms to the next level.”
(Njeri Rionge, p.85 Africa Human Development Report 2016)
On May 5, 2017, Prime Minister Justin Trudeau, committed Canada to set up a new financing institute in Montreal to help co-ordinate private sector investments in developing countries. Known as the Development Finance Institute (DFI) Marie-Claude Bibeau, Minister of International Development and La Francophonie explained that the organization has been created to facilitate partnerships between small and medium companies in the private sector in order to leverage investment in developing countries, particularly in the areas of sustainable development and poverty reduction. The Trudeau government has pledged $300 million over five years.
While Canada is the last of the G7 nations to establish a development finance institution, it is certainly hoped that it can leapfrog its peers in the area of women entrepreneurship across the African continent.