Women entrepreneurs could enrich the world by $6 trillion
The world’s financial system needs reforms to enable this outcome
The world is facing its worst five-year span in three decades. Higher interest rates have left developing countries crushed by debt, and half of the poorest economies haven’t recovered to where they were before the pandemic. Growth is weak across large swathes of the world, and inflation remains persistently high. And behind it all, the thermometer keeps inching up. Last year was the warmest on record, as is true of nearly every month.
For the last several years, world leaders have made big promises and laid out bold plans to mitigate the climate crisis and help poor countries adapt. They pledged that the World Bank would transform itself to work on climate change, and that the multilateral system would get new money and lend more aggressively with the resources it has, including to meet concessional needs. An agreement between creditors would provide debt relief to countries that most needed it. And where public money was insufficient, the multilateral system would be able to catalyse private investment in developing countries.
Despite the bold rhetoric, 2023 was a disaster in terms of support for the developing world. The private sector collected $68 billion more in interest and principal repayments than it lent to the developing world. Amazingly, international financial institutions and assistance agencies withdrew another $40 billion, and net concessional assistance from international financial institutions was only $2 billion, even as famine spread. “Billions to trillions,” the catchphrase for the World Bank’s plan to mobilize private-sector money for development, has become “millions in, billions out.”
It is little wonder that World Bank shareholders have not raised capital, substantially changed financing practices, or taken other bold steps. The International Monetary Fund (IMF) is on net withdrawing funds from the developing world; the idea of comprehensive debt relief has gone nowhere; and financial defaults have been avoided only by the moral default of slashing health and education spending.
Setting aside the complex problem of climate change for a moment, world leaders haven’t even been able to tackle the simplest, most straightforward challenges. War, inflation, and poor governance have brought some of the poorest people (including in Chad, Haiti, Sudan and Gaza) to the brink of famine, yet the international response has been slow and muted. This is both a humanitarian disaster in its own right and a symbol of our broader inability to act in the face of a crisis.
If the world can’t even get food to starving children, how can it come together to defeat climate change and reorient the global economy? And how can the poorest countries trust the international system not to leave them behind if that system can’t address the most basic challenges?
This week, finance ministers, central bankers, and economic leaders are gathering for the Spring Meetings of the World Bank and IMF in Washington, where they will discuss the global economy and lay out plans to strengthen it. But these efforts will fail if rhetoric falls as flat as it did during 2023 in terms of concrete action.
Here are four big ideas as to what is necessary:
reverse the capital flows, so that lowestincome countries get more support than they are paying out to private creditors. In the short term, that means expanding the multilateral development banks’ use of innovative financial tools such as guarantees, risk-mitigation instruments and hybrid capital. In the slightly longer term, it means stepping up with new money from shareholders. A capital increase, that is, for the World Bank and regional development banks, which will require legislative approval in shareholding countries.
transform multilateral development banks (MDBs) into big, risk-taking, climatefocused institutions. Development banks have tinkered around the edges with bolder approaches to lending, but it is time for them to scale up those efforts. The wealthy countries that are the biggest shareholders in the multilateral system need to provide the political support for that risk-taking.
fully fund the International Development
Association (IDA), a highly effective institution that provides much-needed resources to the lowest-income countries. The World Bank’s president has called for the largest-ever IDA replenishment from donors; given the challenges, the world cannot afford to deliver anything less.
tackle food security. Last year, the United Nations was able to raise from international donors only about one-third of what it sought for humanitarian relief, and it had to slash its goals for 2024. Stepping up with funding for the several hundred million people without enough food to eat would alleviate a humanitarian disaster and provide evidence to sceptical countries that the international system still can work.
Half the world goes to the polls this year, from the US and UK to India and Mexico. Pervasive distrust of governments and their promises is a ubiquitous issue, and we see every day that the idea of an international community is becoming an oxymoron. The conventional wisdom is that foreign policy falls by the wayside as politicians turn their focus to campaigning and to domestic issues that will win them votes.
We dare to hope that historians will look back at this week’s meetings as a moment when global leaders seriously addressed global challenges.
The problem is not primarily intellectual. Blueprints like that of the Group of 20 expert group we chaired on strengthening the MDB system abound. It is a problem of finding the political will to take on the most fundamental issues facing humanity.
Every small business owner knows how difficult it can be to access affordable capital. But for many women in the Global South, it’s not just difficult, it’s often impossible. A few years ago in Senegal, I met a woman who decided to do something about that problem. In 2017, Thiaba Camara Sy left her consultancy job and co-founded WIC Capital, an investment fund for women entrepreneurs in West Africa. Since then, WIC Capital has raised more than $5 million and invested in eight businesses run by women who knocked on far too many closed doors before WIC saw their potential.
One of those women, Souadou Fall, co-founded a firm that turns abandoned tires, which would otherwise gather rainwater and breed mosquitoes, into fuel for factories. Fashion designer Safiétou Seck, who’d struggled to find funding despite an MBA and years of experience, was able to grow her business and now has customers around the world. And Isseu Diop Sakho expanded a business that bakes French pastries from native grains, supporting 20 local suppliers and 75 employees.
As inspiring as these stories are, they underscore a big problem: When women entrepreneurs succeed, it’s in spite of the system, not because of it. Worldwide, there’s a $1.7 trillion gap between the credit women need and what they’re able to get. Estimates suggest that by closing that gap, as much as $6 trillion in global GDP can be unlocked. That’s a net gain for the world that we can’t afford to pass up.
A confluence of crises—wars, climate change, covid—has left low- and middleincome countries with sluggish economic growth: 43% of the world’s poorest nations have a lower per-capita GDP now than in 2019. The problem and opportunity are profound in Africa, which has the highest proportion of women entrepreneurs in the world. No country can grow healthier and more prosperous while leaving behind half its people. As leaders gather at the World Bank and International Monetary Fund meetings this week to find ways to accelerate economic growth, they must also seek ways to unlock women’s economic power, starting with access to capital.
After all, while investment funds like WIC Capital can make a difference for a handful of startups, they can’t come close to making up the huge financing shortfall. For that, we need systemic change. Many financial systems simply weren’t built with small borrowers and women in mind. These are rife with bias from lenders who can legally discriminate against women in 96 countries. When a woman walks through the door with a good idea, a smart business plan and a dream to improve her future, lenders too often see only risk. And the women who do get loans often receive far smaller ones than men, even though evidence from M-Kopa, an asset-financier, shows that women are 10% less likely than men to default on their repayments. Reforms can address the financing gap.
governments should remove the barriers facing responsible lenders trying to serve low-income customers while still protecting people from predatory lenders. Capital buffers and compliance burdens can rise along with the lender’s size and complexity. A small microfinance lender isn’t the same as a full-service bank.
the development community should make funds from donor countries available to lenders to help manage risk. If lenders know they’re partially covered in case of default, they’re more likely to invest in a more diverse range of entrepreneurs. This way, donors also incentivize large lenders to loan money to smaller ones.
governments should invest in digital infrastructure so that lenders can add customers cheaply and assess creditworthiness in new ways. Women are less likely than men to have formal credit histories, but they may have informal ones, built by paying bills and saving and pooling money in local groups. With digital tools, lenders can evaluate customers based on less traditional data and share that information securely with other lenders.
donor countries must fully fund the World Bank’s International Development Association (IDA), which must prioritize the lowest-income countries in its efforts to reduce poverty and spur economic growth. By offering loans on better terms, the IDA helps lay the foundation for those countries to build stronger financial systems and aid entrepreneurship.
Getting capital to women is not just the right thing to do. It’s the smart thing to do. WIC Capital has performed well. A quarter of all African women are entrepreneurs. Imagine if their futures didn’t depend solely on a few visionaries by Sy. Imagine the progress that would be possible—for their families, communities and countries—if those who hold the keys to capital opened the doors to all.