Digital-enabled gender-lens investing

Problem: investment in women micro and small enterprises (MSMEs) is challenging due to invisible bias in decision making around lending and equity investments towards women MSMES. Such invisible bias is exacerbated by insufficient data on women MSMEs particularly on their financial strength, ability to execute their vision of the business, and poor documentation on proof of impact, which hinders investment decisions. Additionally, many existing Fintech solutions targeting the unbanked have not incorporated a gender-lens approach further pushing women from sharing in the benefits of potential digital dividends.

Solution: a digital enabled smart and inclusive investment platform for women MSMEs in Africa which incorporates behavioral data science and dynamic impact tracking to support investment decisions in women MSMEsImpact: the proposed solution will bring a holistic solution to address not only the lack of data to support financial decisions but also prove the effectiveness of impact investment in women MSMEs

Despite increasing interest from investors to support women entrepreneurs, the scale of investment in women MSMEs is limited due to invisible bias in decision making. Efforts by financial institutions to increase allocations to women businesses or offer debt restructuring in light of the negative impacts of COVID-19 on business activities, have had limited impact on women: 90% of women MSMEs surveyed did not receive such support. 

Women-led firms are less likely to obtain equity financing as such financing overwhelmingly goes to male founders; in 2019, tech firms founded by women accounted for only 7% of deals and 6% of funding in African venture capital investing. According to the World Bank Gender Innovation Lab, investment teams in Africa remain heavily male-dominated, i.e. 88% of senior investment professionals in fund management teams are male, which underscores the unbalanced power dynamics and lack of diverse perspectives in understanding the growth potential of women-led or women-owned businesses. Moreover, financial institutions still rely on traditional manually collected thick-file scoring methods for credit decisions, which can sometimes lead to overestimated risks of lending to women clients.  Alternative data, especially data in digital form, can more accurately assess creditworthiness of women businesses and reduce costs of lending.

Project:  Our project offers a digital-enabled platform to automate women MSME lending, thereby reducing the costs of reaching the unbanked and increasing the accuracy of decisions in the investing process.  The digital platform is integrated with alternative credit scoring methods (built on behavioral data science) and embeds a dynamic impact tracking module which assesses impacts with as number of jobs created or lost, inclusiveness by company size and age, gender equality, sustainability strategies and climate action.

Process: We offer digitally-enabled automated loan disbursement and collection solutions with regular impact metrics based on self-reporting tools embedded in the loan portfolio supervision process. 

Technology: We leverage tools relying on data and behavioral science, artificial intelligence, and blockchain

Our solution serves women-owned, women-led, women-sourced, and women-employing MSMEs in Africa, who are currently underserved when it comes to accessing working capital and growth capital needed for their businesses.

A baseline study is ongoing in Rwanda and Kenya to understand the post-COVID job market dynamics for MSMEs, and in particular the impact of Covid-19 on women MSMEs.  Using the results of this study our team seeks to improve the value proposition to women entrepreneurs in order to better serve their needs in the uncertain context of a Covid-19 recovery.

Building on the results of the ongoing survey, our digital platform will be well-positioned to capture the impact and growth need of women MSMEs across various sectors and drive economic growth through our lending and small equity investment activities.

Because of the unprecedented nature of the Covid-19 pandemic and it’s still evolving outcomes and impacts, our digitally-enabled dynamic learning platform, will provide useful continuous knowledge on the potential and impact of a variety of financial solutions targeting women MSMEs.   The results would be usable by investors, technology companies and governments in navigating the current pandemic recovery and potentially other future shocks.

Our solution contributes to digital inclusion of women and small businesses (MSMEs) in Africa in multiple ways:

1). It provides safe and formal digital identity (through customer-centered digital onboarding, KYC and credit scoring activities) for many unbanked women entrepreneurs;

2). It offers inclusive financing to allow women and MSMEs to meet their working capital needs and support their growth and transformation strategies; and 

3). It provides tools for assessing impacts in a dynamic manner with the potential to adjust financial decisions on the basis of real-time data, thereby making visible the value of investing in women. 

Our solution is at the pilot stage as we are testing it on women-led, women-owned, women-sourced and women-employing MSMEs in Rwanda and Kenya. The pilot phase targets 1,000 women MSMEs. Following the pilot phase, where a baseline would have been created and the platform proven successful, we plan to roll out in 9 other countries, including Cote d'Ivoire, Senegal, Ghana, Togo, Burkina Faso, Benin, Morocco, Tanzania and Djibouti.

An active digital-based micro-lending platform based in Kenya with automated loan disbursement and collection process integrated with Mobile Money operators is currently available. We are expanding capacities of this platform with behavioral data science and dynamic impact tracking features to enable smart and gender-inclusive investment processes.

We are testing hypotheses to prove 'effectiveness' of the approach:(1) digital-enabled processes integrating behavioral data science help remove investor bias against women MSMEs; (2) acceleration programs attached to financing activity helps improve women MSME's sustainability practices.

We consider our solution to be innovative on five dimensions, i.e.

• creating formal digital identity for women MSMEs
• introducing behavioral science based credit scoring
• granular and dynamic impact tracking
• leveraging blended finance support
• enabling smart and inclusive investment decisions about women MSMEs

In particular, we think the use of psychometric-based testing to complement the traditional thick-file credit analysis and our emphasis on process-driven impact reporting attached to digital disbursement of loans could help to further strengthen the capacity of women entrepreneurs in Africa in terms of using digital tools for their business growth. Furthermore, it will help to educate other impact investors on the untapped potential of digital platforms in achieving their impact investing objectives.

We are currently serving between 400 and 1,000 women MSMEs in Kenya and Rwanda. We plan to reach 100,000 women MSMEs in a year and 500,000 to 1 million women MSMEs within 5 years. We also expect to impact the women businesses involved in the value chain of our investees - which in turn creates jobs and supports economic growth in target countries.

• Gender equality (used as criteria for eligibility for investment) 
  • entrepreneurship: 51% of women ownership of the business or the business is founded by a women
  • leadership: 20%-30% of women in senior leadership 
  • employment: 30%-50% share of women in the workforce
  • consumption: products or services that specifically or disproportionally benefit women 

• Sustainability: portfolio-level: at least 30% of portfolio offer potential for climate adaptation and resilience as well as sustainability such as smart agri-businesses and renewable energy sectors; company-level: commitment and clear business strategy for operational efficiency, technology shifts, business growth, sustainable products, mitigation strategies and use of nature-based solutions
• Job creation: increase by 10% the number of jobs created across all investee companies

SouthBridge Investments core team is made up of 4 people, and our technical solution partners have a dedicated team of 4 and 2 people respectively, who are jointly responsible for monitoring the existing digital solution and upgrading it with behavioral data science and impact tracking. 

Our team is based in Africa - SouthBridge has offices in Kigali,Rwanda  Abidjan, Côte d’Ivoire and a presence in Lagos, Nigeria while our technical partners are active in Nairobi, Kenya, Accra, Ghana and Johannesburg, South Africa. We believe this joint team understands the local context, conditions and challenges faced by women MSMEs in Africa.

Team skills/background

• SouthBridge  team: fundraising for Fintech startups in Africa, investment experience in digital healthcare startups in Cameroon and mobile-based entertainment startup in South Africa, supporting Tech based investing across Africa 
• Technical partner team: with previous experience in Safaricom, Lendable, and successful exit from a Fintech startup

Partner organizations: we work closely with development finance institutions such as IFC and other research organizations such as the Gender Innovation Lab at the World Bank, to design and implement a comprehensive impact tracking framework to ensure the inclusive representation of women MSMEs in the digital space.

Our approach to building a diverse, equitable and inclusive leadership team is based on the following:

Governance:  We ensure our governance bodies such as the Boards, Investment Committees (IC), and Credit Committees - are inclusive along gender dimensions, nationality and other dimensions of inclusion 

Solution Approach: our solution targets excluded groups which in this is case is focused on women, MSMEs, and low and middle income group (targeting income inequality)

Process:  our process of engaging is consultative and we use broad inclusive technique for decision making (inclusion)

Team:  our team is made up of people with varying ethnic backgrounds: Africa, Europe, North America, Asia.  We have a team with multiple nationalities and with a good balance across gender-dimensions. The aim is for the team to embed diversity & equity

First of all, we believe our proposal is well aligned with the mission of MIT Solve challenge in terms of innovation and digital inclusion for the marginalized and underserved communities in the world. Secondly, our track records in Africa and strong experience in the digital spaced alongside our technical partners have helped to improve the viability of this project and ensured that it speaks to the real need of customers and end beneficiaries. Thirdly, we believe that by becoming a member of the Solve community, we will continue to grow and expand our solution via connections within this valuable network and also via the support from MIT alums who are like-minded and share the same vision as we do to improve digital financial services for women entrepreneurs in Africa.

• Human capital: we would love to seek support in software engineering, product development and A/B testing, as well as MSME outreach and client service
• Business model: support in testing product-market fit post MVP period
• Financial: improving the internal risk control system especially regarding the consolidation of credit scoring models and its impact on balance sheet controls
• Monitoring & Evaluation: improve the user experience of impact data collecting and reporting
• Technology: UX/UI design, deploy the web tool on a blockchain-based infrastructure to secure data integrity 

• TruTrade - small farmers in Uganda
• Green Keeper Africa
• Cold Hubs (solar-powered cold houses)

Our solution specifically targets digital inclusion for women SMEs by reducing the cost of financing small companies and bringing digital access to communities currently excluded or underserved. In our target geographies, women as beneficiaries of digital service sector are still a minority group, which underscores the importance of finding the right product that addresses such challenge. By anchoring our financing solution on a digital platform, we aim to empower women to create more economic opportunities for their society and their fellow women entrepreneurs, to advance digital literacy and inclusion.

There is $42 billion women MSME financing gap in Africa. However, this huge market is not well served by bank loans and other available products due to the perceived high risk of women-led or women-run businesses. Our solution addresses both this perception challenge and the need for a properly designed product. Especially in retail and service sectors, women are more represented but not always properly funded. We aim to build on existing digital solutions and make our unique product more inclusive and effective.

Our solution leverages the combination of AI, data science and machine learning technologies to create a seamless platform that serves as a smart and inclusive investment tool for gender-lens investing in Africa. In particular, our proposed psychometric-based testing will help greatly remove investor bias when they consider an investment in women-led or women-owned businesses as compared to male-led or male-owned businesses. However, as mentioned earlier, even algorithm can be biased if not properly designed. Therefore, we will use this grant to further improve our current model and make decisions on this platform become truly unbiased.