Breaking Financial Ceilings for Women Entrepreneurs in El Salvador

USAID CATALYZE Partners with the Private Sector to Propel the Growth of Women-owned Businesses through Innovative Financing

A CASE STUDY

Background

An estimated 70% of women-owned small and medium-sized businesses globally have inadequate or no access to financial services worldwide. Barriers to accessing financing for women-owned businesses include lengthy processes of accessing loans, excessive business information requirements, and a lack of collateral. CATALYZE Women Building Resilience, a five-year activity that began in 2019, seeks to reduce the gender financing gap by unlocking access to financing for women-owned small- and medium-sized businesses.

In El Salvador, women entrepreneurs face systemic barriers to accessing capital, including structural market barriers, cultural and social norms, and stereotypes/beliefs by financial institutions that women are unprofitable clients and/or more price sensitive. CATALYZE partners with financial institutions in El Salvador to support them in initiating or expanding lending to women-owned small- and medium-sized enterprises. This case study delves into the specific case of PROPEMI Banco de America Central (BAC) Credomatic El Salvador, one of CATALYZE’s financial institution partners. The information and lessons learned included in this document were gathered through a combination of individual interviews with BAC and with women who own small- and medium-sized businesses and received financing from the bank. The brief also includes data collected and analyzed from CATALYZE’s activities with the financial institution.

CATALYZE collaborated with BAC to enhance its approach to financing women-owned small- and medium-sized enterprises. The bank provides a broad range of financial products and services to an estimated 3.8 million clients in six countries across Central America, including El Salvador. BAC has attained notable success serving small- and medium-sized enterprises, particularly those owned by women, through PROPEMI, its dedicated small and medium-sized business unit, and its Business Development Center.

Equitable access to credit for women is essential to driving inclusive economic growth, increasing incomes, creating jobs, and improving the well-being of families. Financial institutions that successfully design and roll out enhanced products, processes, and policies that increase women’s access to finance can expand their client base, thereby increasing their profits. BAC has received previous assistance from USAID-facilitated loan guarantee agreements with the U.S. International Development Finance Corporation, which have supported the bank in unlocking access to credit for women SME leaders. Expanding upon that assistance, CATALYZE conducted a gender diagnostic in BAC and leveraged the findings from the diagnostic to inform the development of a gender lens financing strategy for the financial institution. CATALYZE then conducted in-depth interviews with BAC’s current and potential women-owned clients to understand their current financial behavior and unmet financing needs. Based on those findings, CATALYZE and BAC co-designed and piloted a financial credit lending product, which has enabled the bank to expand its reach and scale its portfolio with women-owned small and medium-sized businesses.

An Innovative Solution: A Point of Sale-Based Credit Product

In collaboration with BAC, CATALYZE co-designed a Point-of-Sale -based financial credit lending product that aimed to address many of the common barriers that women-owned small and medium sized business face in accessing conventional loans from banks, such as high collateral loan requirements, complicated loan application processes, and the lengthy time from application to loan disbursement. In July 2022, BAC launched its new point-of-sale-based loan product specifically tailored to increase women-owned small and medium-sized business owners’ access to finance with the goal of disbursing at least US$3.0 million in financing to at least 125 women business owners via the financing product by September 30, 2024.

This new financing product allows the bank to use point-of-sale data to determine eligibility for financing without requiring the borrower to meet traditional loan requirements. Business owners who are eligible for the new financial product receive an email with information about the product and with the click of a button, they are directed to the required forms, speeding up the loan process.

This digital component makes it possible for women to do most of the loan application from home, without having to leave their business or household duties. The point-of-sale-based financial product eliminated the need for full financial statements and collateral requirements, which are necessary for conventional loans. With fewer requirements than those of the bank’s conventional loan offerings, the credit lending product decreased loan application time from 11 days to approximately two, from start to finish.

Further, managing the loan process and communicate through digital channels minimizes time spent on administrative procedures and can increase efficiency and control of operations with automated point-of-sale usage reporting. BAC trained women on the benefits of registering their sales on the point-of-sale product. In turn, the line of credit helps the borrower develop a credit history.

As of August 2023, BAC had far surpassed its financing goal, mobilizing $8,643,352 in financing for 235 women-owned small and medium-sized enterprises in 10 different departments of El Salvador in 11 months of implementation.

Miguel Jacobo, PROPEMI business manager, said: “It has been a learning experience, but also a proof of our hypothesis: women entrepreneurs require simplicity, agility, and have no guarantees to offer. On the other hand, we have also seen how excellent they are at paying their obligations. We have also supported them with all our online and mobile banking facilities, as well as payment methods. The client does not need to go to the bank, the documents that by law must be signed in physical form are sent to their business. The achievement has far exceeded our expectations, we are very satisfied.”

To measure the impact of its assistance, CATALYZE developed a framework with monitoring and evaluation (M&E) data collection requirements and learning questions to enable BAC to provide data as required under the broader USAID CATALYZE program. BAC is collecting monitoring, evaluation, and learning data, such as the total value of financing disbursed, via the point-of-sale-based loan product; the total number and contact details of small and medium-sized businesses, disaggregated by gender, who received the financing; and other key performance indicators.

As a global learning project working in 39 countries, CATALYZE regularly shares information, insights, strategies, and resources across projects, organizations, and sectors, leading to increased efficiency and impact. BAC has participated in two global learning events and one in-country learning event with ecosystem stakeholders, sharing its experience with CATALYZE.

Based on the learning from the point-of-sale-based product, the bank has replicated the analysis model to finance customers who receive payments as suppliers of other companies.

“USAID has been a catalyst in our strategy to support women business leaders,” continued Miguel Jacobo, Business Manager of BAC El Salvador PROPEMI. “With a joint vision and by working together, we are promoting women entrepreneurs and with them the economic and social development of El Salvador”.

CATALYZE Women Building Resilience’s support provides a level of risk mitigation to BAC, which is increasing lending to women-owned small and medium-sized businesses, and as a result, benefiting women.

The Financial Impact of BAC’s Point-of-Sale-Based Product

161 women-owned small and medium-sized enterprises have benefitted from BAC’s increased financing through the point-of-sale-based product through its partnership with CATALYZE.

In an 11-month period, BAC has disbursed $8.6 million and expects to continue increasing lending via this product in the future.

Women-Owned Small and Medium-Sized Enterprises:
The CATALYZE Effect

Female borrowers have since underscored how the introduction of the new product enabled them to access capital more quickly, allowing them to capture business opportunities and better manage their businesses.

Multiple borrowers also reported improved business performance thanks to financing accessed via the point-of-sale-based product, underscoring the benefit of USAID CATALYZE’s technical assistance on Salvadorean women-owned small- and medium-sized enterprises. BAC has not only mobilized more capital and reached more women-owned small- and medium-sized businesses than expected thanks to CATALYZE’s support, but it encourages the financial institution to continue its ongoing gender and equity strategy.

BAC is also using the product to reinforce client relationships and encourage users to seek out other financial solutions available to small- and medium-sized enterprises, such as online payroll payments, payment of suppliers and taxes, loans with preferential rates, international transfers, and online banking. Strengthening its relationship with these women-owned businesses will increase BAC’s profitability while helping the businesses to grow.

CATALYZE’s work with financial institutions is transforming the market and expanding access to appropriately structured financing for women small- and medium-sized enterprises in El Salvador. CATALYZE is partnering with five additional financial institutions to conduct gender diagnostics and to design and rollout new approaches for better serving women-owned small- and medium-sized businesses, building on its success with BAC.

Demand for capital is high among these women business owners, and CATALYZE’s success with its partner financial institutions will likely entice other private, public, or development entities to structure similar instruments.