By Sonja Kelly, Director of Research and Advocacy, Women’s World Banking
One of the most elusive questions in financial inclusion is how to facilitate growth of small businesses—and particularly of women-owned businesses. With this question in mind, in 2016 Kenya Commercial Bank (KCB) and Women’s World Banking set out on a journey to empower women-owned MSMEs in Kenya. Our hypothesis was that providing tailored financial services alongside support services like business networking and training would have a positive effect on MSMEs and especially increase economic empowerment of women-owned MSMEs.
Our research found that a combination of financial and business support services provides opportunities for both customers and for the institution. In the short term, this program expanded access to a range of services for MSMEs, particularly those that are women-led. It increased customer satisfaction with the institution and drove profit. In the long term, the program contributed to the business growth of MSMEs, supported the economic empowerment of women business owners, and provided a roadmap to financial institutions in Kenya and other regional markets on how to improve services to the MSME segment.
We were encouraged by these positive findings, and impressed by KCB’s willingness to think creatively about the challenge of finance and business support for their women entrepreneur customers. Among the components of the solution KCB and Women’s World Banking designed were the following elements:
- Implementation of a new cash flow-based credit assessment, which was particularly important for businesses which did not maintain audited financial statements
- The development of a relationship management model enabling KCB to foster better relationships with their business customers, especially women
- Non-financial business support services including training and access to a club for business owners
- The cultivation of a strategic gender focus, including women’s input in the design process, sex-disaggregated data collection, and use of input and data in decision-making
The solution was effective in meeting KCB’s business goals, as well as in supporting women-led MSMEs to grow their businesses. By the end of December 2019, KCB had disbursed 3,767 loans valuing KES 10.8 billion (about $98 million U.S. dollars) under this new approach, with a net profit loss of only 1.5%. Under the initiative, there were 75,683 accounts opened with a total of KES 8.9 billion ($82 million U.S. dollars) in deposits.
In the report, we go into detail on the evidence behind our top-line findings:
Enhanced services for MSMEs can support business objectives of a financial institution and positively impact MSME growth. For KCB, the new proposition enabled them to maintain their MSME portfolio in the face of a challenging lending environment, and ensure the quality of that portfolio in terms of repayment. Further, the majority of enterprises that received loans from KCB under the new proposition experienced growth in terms of revenue and number of employees, with a median annualized growth rate of 10%.
Financial institutions have an important role to play in advancing outcomes for women-led MSMEs. While the sample size was limited, we found evidence to support that advancing empowerment is a realistic goal for financial institutions. Under this program, lending to women increased and customers felt that the financial institution was addressing their business needs. The institution began tracking gender among their MSME customers, and as a result has data on which to make decisions that will increase success among women-led MSMEs. Once rolled out, women received 51% of loans during the project.
This is a strong result, when compared to 2015 data, which showed that only 22% of loans disbursed to SMEs owned by sole proprietors were women. The empowerment framework that KCB and Women’s World Banking deployed to measure the effectiveness of the intervention proved to be a useful lens through which to describe multi-dimensional outcomes.
Enhanced services to MSMEs require a multi-level organizational strategy. The solution that KCB deployed was complex in that it included a new relationship management model, a new lending methodology, additional business support services, and a gender framework. It involved an updated core banking system, staff training, increased communication between departments, and multiple partnerships. Given its complexity, the solution required buy-in at all levels of the financial institution. To have greatest impact, institutions must display the same intentionality across all levels and implement in all branches.
MSME customers and institutions are especially vulnerable to shocks. While outcomes of an offering such as KCB’s can be positive for MSME customers and financial institutions, credit solutions such as this are subject to external risks such as political instability and changes to the regulatory environment. This project faced a number of challenges due to the regulatory and economic environment in Kenya, which ultimately resulted in drastically reducing the loan disbursal target for this project from 5,788 to 602. While the intervention garnered positive results, both KCB and Women’s World Banking learned firsthand the necessity of adapting expectations amidst uncertainty.
While these findings are encouraging, it is worth noting KCB’s extraordinary efforts to achieve these results. The intervention was a significant investment, and we credit much of the program’s success to KCB’s tenacity and commitment to serving and facilitating growth among women entrepreneurs. We hope this evidence encourages other financial institutions to invest in their women customers in these and other ways.
Read the full report here discussing these findings with KCB.