Africa’s businesswomen: Bridging the performance gap through supplier credit
Africa’s female entrepreneurs could outperform their male counterparts, with improved access to formal funding. They already benefit enormously from improved funding through supplier credits. While funding typically refers to formal financial sources, such as bank credit, researchers from the Kiel Institute for the World Economy and the University of Ghana have revealed how this alternative source of credit, directly provided by suppliers, is particularly useful in narrowing the productivity gap.
“We already knew from existing research that reduced access to formal funding hinders women’s ability to compete with their male counterparts. However, we found that when funding is available, the performance gap not only disappears, but female business owners actually outperform their male counterparts,” explains Aoife Hanley, co-author of the study. “Another important finding is, that one of the informal funding options—supplier credit—is connected with a narrowing in the productivity gap.”
Analyzing survey data of over 800 male- and female-owned businesses in Ghana, researchers at the Kiel Institute for the World Economy and the University of Ghana reveal a substantial productivity gap for female-owned businesses, compared to businesses owned by men. In value terms, this gap translates into a productivity shortfall of 11 to 19 percent, comparable to estimates for other African countries.
One of the key barriers encountered by female entrepreneurs is a lack of access to formal funding. Interestingly, when the researchers looked more closely at the underfunding problem, they discovered that the funding possibilities for female entrepreneurs are more varied than reported in previous studies. In addition to the formal sources such as bank credit (reported as excessively limited by female entrepreneurs) and equity (almost never used), informal finance plays a key role, with liquidity provided by family and friends, or through supplier credit.
“While the successes of ‘Africa’s Lionesses’—successful female entrepreneurs—are internationally celebrated, these visionary businesswomen are the exception rather than the rule. Sadly, the gender productivity gap in African countries remains stubbornly high due to a lack of funding opportunities for the lionesses,” Hanley says.
Supplier credit, whereby payment for goods and services received is made after a certain period of time, represents a cheap and straightforward way to boost short-term liquidity. Supplier credit is the most important source of finance for small firms in all developing countries, after bank loans.
“While policy makers are wary about dictating to banks to improve access for women to formal finance sources, they could recognize the unique role of supplier credit. Using this line of liquidity to improve the performance of female-owned businesses provides an alternative channel to narrowing Africa’s gender productivity gap,” argues Hanley. “Policy makers should give serious consideration to supporting Africa’s businesswomen by introducing targeted tax-cuts for suppliers working closely with female-owned businesses.”