Gender-Responsive Procurement: Practices to Address the Gender Credit Gap
There is a growing trend to harness the power of public procurement dollars in order to affect social change. The Government of India introduced in 2015 the Public Procurement Policy for Micro and Small Enterprises (MSEs) Order, which includes a 3% target for purchasing from women-owned enterprises.[1] This is an example of an emerging global trend of governments and corporations targeting social change through their procurement spending. This is done by buying from businesses with ethical or sustainable practices or from social enterprises that reinvest into underserved communities or address other social or environmental issues. This can go by many names such as ‘sustainable procurement’ or ‘social public procurement’ (SPP), ‘broader outcomes’ or ‘procurement with a purpose’. Gender-responsive procurement (GRP) is an approach to SPP that specifically targets gender equity.[2]
Women entrepreneurs face more barriers than their male counterparts. These barriers are global in scope but are more prominent in places where gender inequity is more pronounced. Systemic gender inequity has resulted in women entrepreneurs having less access to capital and resources within procurement chains.[3] Presented below is a snapshot of the global challenges women-owned businesses face in accessing capital, and some GRP strategies that governments and financial institutions can take to bridge the gender credit gap. It is important to note that access to credit is only one of many challenges that women-owned businesses face.
The Gender Credit Gap
Public procurement tends to have large contracts. Businesses applying to fulfill public tenders often require additional capital from financial institutions in the form of loans.[4] According to a study published by the UN, financial institutions are less likely to offer women the same terms as men, even if they qualify for loans. Women-owned businesses tend to be smaller and financial institutions assume there are higher risks and costs, and lower returns as a result. Specifically for small and medium-sized businesses, only 14-19% of International Finance Corporation (IFC) loans are issued to women-owned businesses, “despite evidence that they perform as well as those owned by men.”[5] In addition to these barriers, a study by the international consulting firm Ernst and Young showed that women entrepreneurs are more reluctant than men to apply for loans or take on debt for their businesses, even when the option was available to them.[6] As a result, women use more of their own savings to start their businesses compared to men and find it more difficult to scale up their businesses even when access to credit may be available.[7] These factors equate to a global credit gap of $287 billion for women-owned SMEs in the formal sector[8] and a $1 trillion gap when including the informal sector.[9] The gender credit gap can be attributed to a lack of access to collateral and other factors influenced by gender bias.[10] Challenges in accessing credit often lead women to operate businesses in sectors of the economy that have low barriers to entry and limited potential for growth.[11]
Recognition of the challenges faced by women-owned businesses in accessing credit has led some financial institutions to offer services specifically geared to address this problem.[12] For example, the Government of Karnataka developed an Industrial Policy, between 2014 and 2019, which offered subsidized and low interest start-up loans and a more flexible repayment schedule to women-owned businesses that had previously undergone a training put on by the government.[13] Another example is the Women Enterprise Fund in Kenya, which offers credit to women so that they can start or grow their businesses at affordable rates.[14]
Collateral is a key factor in accessing credit. Collateral for a loan is usually a ‘fixed asset’ typically in the form of a land title or property deed. Systemic barriers often prevent women from such access to collateral. According to an OECD study of 102 countries, land titles are often denied to women either through laws or custom. Policy that prohibits discrimination against women are often ineffective.[15] In a TedTalk by Leila Seth, she reflects on how women in India often adhere to tradition by relinquishing their property inheritance in order to maintain positive relationships with their brothers, despite a 2005 law stating that they are entitled to an equal share of all land inheritance.
GRP Strategies to Mitigate the Gender Credit Gap
A) Governments can offer smaller-scale public procurement contracts: Procurement contracts are often large, with multiple requirements bundled within them.[16] Many women-owned businesses tend to be small and frequently lack the necessary capacity to fulfill contracts of large sizes.[17] Governments can implement smaller contracts with more attainable deliverables for MSMEs. Public procurement contracts require a variety of resources from small businesses, from the application process to the completion of the contract. Therefore, reducing the procurement contract size may help women-owned MSMEs by both minimizing initial capital requirements and helping businesses build capacity for future larger contracts.
B) Governments can offer prompt payment terms: While including women-owned MSMEs in public procurement can foster significant social and economic benefits, a barrier is presented when payment terms for tenders cannot be promptly provided to suppliers.[18] This hampers the ability of women-owned MSMEs to bid for a tender if they lack access to immediate finance, as they do not have the same capacity to absorb delayed payments as larger firms with more working capital.[19] Thus, the probability that they will engage as a supplier in the bidding process decreases, especially if the business owner is servicing loans.[20] In the face of these financial barriers, the government can offer shorter payment terms. This GRP strategy on the timely provision of cash flow can ensure women-owned businesses have the necessary capital to pay back loans, helping to ensure their continued and long-term engagement in the market.
C) Financial institutions can accept alternative forms of collateral or develop collateral-free credit mechanisms: An effective way to increase collateral for women is the creation of alternative collateral registries where other ‘movable assets’ like inventories, receivables, household goods, and vehicles can be used instead of land titles or property deeds.[21] Between 2010 and 2015 “Ghana has registered 60,000 loans totaling approximately $14 billion. The registry has enabled more than 8,000 SMEs and 30,000 micro-enterprises to secure loans.”[22] Diversifying and increasing accessibility to collateral allows more women the opportunity to access credit in order to compete for procurement tenders.
Alternatively, the need for collateral when applying for credit can be completely foregone with collateral-free credit mechanisms. Examples of such mechanisms in India on the public procurement side include the Prime Minister’s Employment Generation Programme (PMEGP), Micro Units Development and Refinance Agency Ltd. (MUDRA), and the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). For example, MUDRA provides refinancing support to financial institutions which offer collateral-free loans to MSMEs up to $13,000 USD. MUDRA loans are available for the manufacturing, services, retail and agricultural sectors.[23] Collateral-free credit mechanisms such as MUDRA could double down on their efforts to support gender equity by introducing a specific target for women-owned businesses, called credit disbursement targets.
Looking Forward
This snapshot on the Gender Credit Gap specifically examines how public procurement can target women-owned businesses to encourage gender equity. It is important to recognize that the suggested practices – smaller contract sizes, shorter payment terms, and alternative forms of collateral – can also be applied to encourage equity in additional areas, such as rural community development. Both women-owned MSMEs and small businesses in rural communities face similar barriers to business growth.[24] Thus, MSMEs located in rural communities that seek to obtain public procurement contracts would also benefit from GRP policies.
This article was jointly authored by Julia Brown, Tasha Carruthers, Katherine Pease, and Annabel Steidl as a part of their Global Policy Project in 2022. The research explored case studies to determine the enabling environment required for the successful implementation of social public procurement in India, specifically analyzing how best to engage social enterprises to maximize social outcomes.
[1] Ministry of Micro, Small & Medium Enterprises, “Public Procurement Policy,” 2016, https://msme.gov.in/public-procurement-policy.
[2] Women’s Empowerment Principles, “Gender-Responsive Procurement,” UN Women, 2020, https://www.weps.org/resource/gender-responsive-procurement.
[3] Ibid.
[4] UN Women and Open Contracting Partnership, “Empowering Women through Public Procurement & Enabling Inclusive Growth,” Open Contracting Partnership, 2021, https://www.open-contracting.org/resources/empowering-women/, 5.
[5] Ibid., 4-5.
[6] Keric Chin, “The Power of Procurement: How to Source from Women-Owned Businesses,” UN Women, 2017, https://www.unwomen.org/en/digital-library/publications/2017/3/the-power-of-procurement.
[7] Ibid.
[8] International Finance Corporation, “Improving Access to Finance for Women-owned Businesses in India,” 2014, https://www.empowerwomen.org/en/resources/documents/2014/6/improving-access-to-finance-for-women-owned-business-in-india?lang=en.
[9] Jackie VanderBrug, “The Global Rise of Female Entrepreneurs,” Harvard Business Review, September 4, 2013, https://hbr.org/2013/09/global-rise-of-female-entrepreneurs.
[10] Chin, “The Power of Procurement,” 30.
[11] UN Women and Open Contracting Partnership, “Empowering Women through Public Procurement,” 4.
[12] Ibid., 5.
[13] Chin, “The Power of Procurement,” 55.
[14] UN Women and Open Contracting Partnership, “Empowering Women through Public Procurement,” 16.
[15] Organization for Economic Cooperation and Development, “Social Institutions & Gender Index 2014 Synthesis Report,” Investing in Women, accessed April 1, 2022, https://investinginwomen.asia/knowledge/social-institutions-gender-index-2014-synthesis-report/.
[16] Chin, “The Power of Procurement.”
[17] Ibid.
[18] UN Women and Open Contracting Partnership, “Empowering Women through Public Procurement.”
[19] Chin, “The Power of Procurement,” 53.
[20] Ibid.
[21] Ibid., 31.
[22] Ibid.
[23] “Interest Subvention Scheme for MUDRA - Shishu Loan,” Mudra Offerings (MUDRA), accessed April 6, 2022, https://www.mudra.org.in/offerings#:~:text=Hence%2C%20MUDRA%20loans%2C%20i.e.%2C,Micro%20Units%E2%80%9D%20%5BCGFMU%5D.
[24] Astrid ter Wiel, “Global Summit on Gender-Responsive Public Procurement,” webinar from International Trade Centre SheTrades Initiative, March 2, 2022.