How gender parity affects performance of SMEs1 min read . Updated: 10 Apr 2019, 01:41 AM IST
- SMEs run by female entrepreneurs have a higher default ratio than those run by male counterparts, finds a new ADB study
- Inequality in accessing finance largely stems from financial literacy gap between men and women, the ADB study says
Mumbai: Globally, across industries, women are making important strides in business. In corporate giants, such as International Business Machines Corp. (IBM) and General Motors (GM), more women are now in leadership positions, while women-owned businesses are expanding in number and size.
However in Asia, women-owned businesses may not be flourishing, especially when it comes to financial performance, finds a new Asian Development Bank study authored by Farhad Taghizadeh-Hesary and others.
Studying a sample of 1,492 export-oriented small and medium enterprises (SMEs) from Iran, of which 84% were run by men and 16% by women, the authors find that women-owned SMEs have a higher default ratio.
Despite having relatively good leverage, women-owned SMEs were outperformed by small businesses run by men in parameters such as profitability and liquidity.
Borrowing from past literature, the authors suggest that this is because women-owned SMEs face particularly high prerequisites for accessing finance in the form of higher collateral and interest rates compared to those run by men.
The authors argue that this inequality in accessing finance largely stems from the financial literacy gap between men and women.
Among lenders, there is a preconception that women-owned SMEs are more likely to default. The authors suggest that the results from Iran can be extended to other Asian economies, wherein SMEs form a significant portion of the economy.
In these economies, the challenges faced by women-owned SMEs in accessing funds result in substantial losses to economic development, including GDP growth and employment.
The authors suggest that SMEs run by women need financial education, which would help them manage debt and improve strategic management for higher profitability.
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