Small businesses are powerful drivers of economic growth, but many micro, small, and medium enterprises (MSMEs) lack access to the capital they need in order to expand. Women-owned MSMEs are particularly affected by this credit gap: the SME Finance Forum found that around 50% of all women-owned MSMEs in developing economies are unserved or underserved by the formal financial sector. In Mexico, where the Asociación de Bancos de México estimates that MSMEs represent 90% of the country’s enterprises, this represents a significant market opportunity to provide credit to women entrepreneurs.
Since 2014, Women’s World Banking has partnered with Mexico’s Compartamos Banco, with support from the MetLife Foundation, to strengthen the bank’s individual lending program and develop a more robust business case for serving women-owned MSMEs. Following a nine-month pilot of the new individual lending program, the Women’s World Banking team traveled to Mexico this past July to conduct a pilot assessment and identify next steps in rolling out changes at a national level.
The evaluation found significant improvements in the individual lending program as a result of the changes implemented in the pilot. Joint trainings by the Women’s World Banking and Compartamos teams enhanced the sales and financial analysis skills of both loan officers and middle managers, enabling the bank to reduce credit risk and more effectively serve the target segment of women entrepreneurs. Pilot branches were also able to disburse more loans by adopting a structured daily planning routine and using a new mobile app to track follow-ups with potential clients.
A clear takeaway from the pilot was the importance of developing a customized approach to serve the particular needs of the women-owned MSME segment. These clients are distinct from both Compartamos’ existing base of group loan clients and the larger businesses traditionally served by banks, and thus require a unique customer value proposition.
The pilot assessment highlighted three key factors that must be in place in order to successfully deliver credit to women entrepreneurs:
1. Tailored product design
Product features must be designed to suit the needs of women small business owners. For instance, lending policies should allow for flexible loan amounts and repayment periods, so that a customer’s loan can be adapted to suit the needs of her business. Compartamos’ individual loan product had these features, but the pilot identified one remaining sticking point: the guarantor requirement. While a guarantor represents a useful option for some customers without substantial fixed assets, many owners of more developed businesses found the guarantor requirement more onerous than pledging assets. By identifying this issue in the pilot phase, Compartamos will be able to adjust the product design to better suit the needs of women customers.
2. Personalized customer education and marketing
Imagine you are the owner of a small grocery store. If a stranger entered your shop and immediately offered you an individual loan to grow your business, would you take it? Probably not – at least not without asking a number of questions first. I would want to know who this stranger was and what kind of organization he or she was working for, and I also might not have thought much about whether a loan would make sense for my business at that time.
An effective customer education and marketing approach should clearly link the bank’s credit offerings to the challenges women business owners commonly face. As part of the pilot project, Women’s World Banking and Compartamos developed a sales speech to enable loan officers to better connect with potential new customers. The approach starts with relationship building, through an introduction to the individual loan officer and to Compartamos as an institution. Loan officers are coached to engage the customer in a conversation about their business, in order to establish rapport and learn about the customer’s needs. A simple question such as, “How’s business going this week?” can lead to a discussion of the shop owner’s need for capital to purchase more inventory. If it turns out no loan is needed at that time, this personalized approach builds the loan officer’s relationships in the local business community and positions Compartamos to be the long-term bank of choice for small businesses.
3. Alignment of staff resources and incentives
In addition to customer-facing aspects, the bank’s back-office operations should also be structured in a way that supports an individual lending program. For Compartamos, one of the challenges addressed in the pilot was the different geographic distribution of group and individual lending markets: group loan customers were concentrated in residential neighborhoods where women conducted home-based economic activities, while individual loans targeted more established MSMEs in commercial areas. Consequently, the bank developed a distinct approach to distributing individual lending staff, with dedicated individual loan officers operating in parallel to but separately from the group lending program.
Assigning dedicated staff in a manner that aligns with the individual lending market is very important, but at the same time, the individual lending program also needs to integrate with the larger organizational structure. To ensure successful launch of a new individual lending program, managers must be incentivized to balance individual lending with other products and priorities. Through the pilot project, Compartamos and Women’s World Banking also developed a continuing training program for individual lending staff that provides regular skills reinforcement complemented by coaching and mentoring in the field. This ongoing support will strengthen the bank’s internal capacity and enable long-term success for the individual lending program.
By refining Compartamos’ approach across these key factors, the pilot enhanced the bank’s ability to effectively serve women entrepreneurs through individual loans. Women’s World Banking looks forward to continuing to partner with Compartamos to further develop its full suite of financial services to support women-owned MSMEs.
For more on individual lending, check out our recent publication, “Individual Lending for Low-Income Women Entrepreneurs: An Inclusive Approach.”