Inclusive green finance policy must reflect the needs of women and small businesses

For inclusive green finance policy to be effective, it must take into account the unique threats and challenges faced by women and small businesses, says Bhim Adhikari, Senior Program Specialist at Canada’s International Development Research Centre (IDRC).

Until now, the linkages between gender, micro, small and medium-sized enterprises (MSMEs), and climate finance have gone largely unresearched. Green Transition Measures for MSMEs, a new report from the Alliance for Financial Inclusion, produced with the support of Canada’s International Development Research Centre (IDRC), explores how inclusive green finance policy can take account of the barriers and vulnerabilities experienced by women and MSMEs.

Inclusive green finance seeks to advance climate resilience and emissions reduction through expanding people’s access to financial services and products. Today, a lack of access to financial services, markets, education and property rights is holding women back. Similarly, MSMEs struggle with barriers in accessing finance, limited tax incentives, higher costs of green financing, and insufficient or limited risk sharing mechanisms.

Small, women-led businesses are engines of innovation and bring with them understanding of local markets, land, skills, and networks needed to overcome practical growth challenges. However, MSMEs face a host of obstacles in low- and middle-income countries, from missing market functions to technical capacity. Access to capital is a key barrier that constrains the growth of most green and women-owned businesses, and especially so for women led MSMEs, as most funds are disbursed in large amounts, while women are mostly involved in micro-scale enterprises that face barriers to accessing these funds.

Green Transition Measures for MSMEs is the fruit of a groundbreaking partnership between policymakers (the central banks and financial regulators of the global AFI network), and academia (a council of researchers convened by IDRC). The goal was to advance our understanding of the vulnerabilities faced by women-led small businesses, a complex and multi-faceted issue, in order to support further research, and to expand practical tools for policymakers.

The resulting report flags how women-led small businesses:

• work in sectors with significant climatic exposure, often restricted to marginal and degraded agricultural lands that are prone to flooding
• struggle to access capital and technology, and suffer from gender-blind policies and restrictive sociocultural norms
• must juggle business and household responsibilities, meaning they must manage risks at both levels when disaster strikes

While emphasizing that inclusive green finance policy must take the unique context of women and MSMEs into account, the report is cognizant of the practical difficulties which policymakers face in achieving this. These include:

• insufficient data on green finance and financial inclusion pertaining to MSMEs
• limited applicability of green taxonomies for MSMEs
• a ‘one-size-fits-all’ regulatory requirement
• lack of categorization of sustainable economic activities which MSMEs can participate in
• lack of gender disaggregated data
• difficulties to obtain green certification to qualify for green financing
• high cost of green financing for MSMEs

The challenges facing policymakers are therefore considerable, but the report contains examples from around the world of how central banks and financial regulators are successfully developing gender- and MSME-responsive IGF policies.

By being upfront about the barriers which women and MSMEs face in accessing finance and adapting to climate change, as well as the hindrances facing policymakers, this new report will make it easier for countries to develop gender- and MSME-responsive policies which address their needs, encourage innovation, increase employment, build resilience, and promote financial stability.

It also sets the scene for further cooperation between financial inclusion policymakers and researchers, who have much to gain through collaboration.

Inclusive green finance can be an important part of the policy toolbox; the more we know about how to tailor it to women and small businesses, the better.