by the Lionesses of Africa Operations Department
We have to immediately state (for those of a fearful nature) that the Lioness cub in the above incredible picture by Sarah Skinner that won the Comedy Wildlife Photograph of the Year 2019, did survive unhurt (somehow!). But it shows clearly that for all of us there are differing levels of understanding and appreciation of risk, in this case both for the cub and for the unsuspecting male who would assume that no one is that daft. As Einstein would agree, Risk is Relative! (Feeling brave? Zoom in and see those claws!)
Yet what is risk and how is it that risk is not viewed the same by all?
According to The World Bank (here), poverty in Africa is heavily concentrated in a few countries. Over 70 percent of the region’s poor people live in just 10 countries—Nigeria, D.R. Congo, Congo Rep, Ethiopia, Tanzania, Kenya, Madagascar, Mozambique, Uganda, and Malawi. Within these countries many have to live in extreme poverty, defined as those living on less than $1.90 per day. If you see such poverty each day, hear of tragic stories every hour and recognize how people are forced to live on a daily basis, would it not make you think twice about risking all on a business? The 9-5 life does seem to have a warm magnetic pull, yet perhaps starting a business is the only option - there is no work and you are forced to tread the entrepreneurial road. Or you have this drive that you simply cannot ignore, no matter the risk, to do something about this incredible poverty. However, would such poverty not make you think twice about growing too quickly, investing too much on certain projects and potentially risking all?
This question of how one’s environment affects us and impacts our propensity to risk is not a small one. It is often said that women led businesses are a risky investment, yet we have never seen that in practice. If an inability to attract financing makes you a more risky investment, then perhaps so - sadly we are by nature a herding animal so if one bank lends, others will too!
Is it instead a greater empathy and a higher recognition of this perilous road we travel within women that lowers their propensity to accept too much risk, or is it simply that bankers view risk differently from mere mortals and we just don’t understand? Too little risk or too much - very confusing!
This is a major issue and we daily hear stories of Bankers who misunderstand that they are talking to business owners. Business owners who have already calculated that a loan from a bank to build and expand their business is the next correct course of action. Business owners who don’t need to be lectured on risk, have their time wasted and then shown the door because although their business is a good one, the bank in question has its hands full with other issues, such as their rising Non-Performing Loan (‘NPL’) book with predominantly male owned (statistically true) businesses.
What is more perplexing is that women are often referred to as ‘risk averse - as Forbes contributor Avivah Wittenberg-Cox said here “…I always wonder why we would accept male attitudes to risk as the norm, and refer to women as ‘risk averse,’ rather than flipping the script, and say men are risk-embracing.” So Lionesses are risk adverse and according to banks, risky businesses, yet they happily invest in ‘risk-embracing’ businesses - again, so confusing!
Even in the male dominated construction and engineering, as The World Bank says (here): “Female-owned enterprises operating in male-dominated industries are as large and just as profitable as their male-owned counterparts.” - Seems a better bet to us!
So how are banks calculating risk? Or put it another way, why are banks not paying attention to results such as this:
Perhaps the way the banks ‘value’ risk is the issue. Collateral for a loan in ‘High Income, OECD’ countries stands at 88% of the loan, collateral in sub-Saharan Africa stands at 203.7% (check here!). 203%? So who’s worried about risk?
“Just put double of the loan value down on this table and we shall consider you for a loan!” If a business is unable to put down 200% collateral (in the form of some asset), then yes, we admit, they are more risky than the companies able to do this, but seriously?!
So what is being done to change this? In difficult times Governments boost economies by pushing money to their SMEs via banks, which allows banks to build up their own balance sheet first before trickling out what’s left. A daily Government helping hand for the banks! In Kenya during Covid the Central Bank lowered interest rates they lent to banks from 8.5% to 7% (1.5% cut) assuming that the banks would pass this cut onto their customers - some hope! Their rate was cut a tiny 0.37% from 12.29% to currently 11.92% (from the Kenyan Association of Manufacturers here). N.B. this is the average rate is for ALL banks’ customers, imagine the rate for SME’s only!
Recognizing this blockage, Governments started to look at other ways. Greenspan (ex-US Fed Chair) talked about Helicopter Money as the best way to get cash into the hands of the population fast. The idea being that if he flew a Helicopter above New York and just threw bundles of cash out to the crowd below, they would spend this direct windfall and so the economy would start moving again.
The same issue happens in the development world. Many ‘western’ DFI’s are so huge that they have to use local banks to pump the local economies (to be fair - why reinvent banks in every country if there are enough local banks that promise to use the money to boost the local SMEs?), indeed as the The AfDB and Afreximbank report “Trade Finance in Africa” shows (here), 60% of all banks received some kind of DFI support for Trade Finance (which should oil the wheels of SME business). Yet as we have seen in spite of huge amounts of DFI money flowing into banks, nothing seems to change - so what is happening?
Two things: According to many we have spoken to, local banks are shoring up the companies that they previously lent to. There is no doubt that Covid has created a sharp increase in NPLs, and given that historically banks have lent to male owned businesses (including in Trade Finance), it is the male run businesses that are getting the lifeboat. As has been said many times before: “If you owe your bank $100,000 you have a problem, if you owe your bank $10million, they have the problem!” So DFI’s have also started to look at ways of bi-passing banks and getting cash straight into the hands of those on the ground, but it is slow and until DFI’s insist on a re-balancing of the risk parameters that banks use for women led businesses, this will not change and this brings us to the 2nd issue:
DFI’s by definition are development and therefore should accept a higher NPL ratio, but if DFI’s have to feed their money through banks with a lower NPL ratio, then this becomes the bottleneck. DFI’s are forcing their money through the local bank’s Credit and Risk Committees with (yes!) 200% collateral needs. QED!
Women are perceived as more risky not because they are - as we know they are in fact risk adverse exactly because they are closer (apologies for generalizing here) to the pain and suffering they see daily on the streets and exactly because historically the burden of the family and food has rested on them (so why risk the house?), and why risk the employment of their many workers on a project that might not work… but simply because as The World Bank says: “Female entrepreneurs in Africa have systematically lower levels of business capital – including equipment, inventory and property – relative to their male peers…the typical male-owned firm has over six times the capital investment of female-owned enterprises.” and so much of that is historical. It’s only recently that women have been able to own land, property, businesses, even open a bank account without their husband’s signature in many countries, so it is no surprise that finding 200% collateral is so difficult!
Perhaps we should start seriously flexing our muscles. Previously the ‘Pink Pound’ created a sudden realization that the spending power of the LGBT community had serious weight, then there was the Grey Pound for OAP spending power. We need to increase our buying from other Lionesses and importantly, in areas where there is little Female ownership or significant management (going out on a limb here - Banking?), vote with our feet.
Perhaps the very male banking world of Africa needs to recognize that if they don’t take notice of changes around them, adapt and be nimble, someone may quietly come up behind them and like our Lioness cub in the photo, give them the shock of their lives.
As we said - risk is relative!
Stay safe.