This article has been translated with DeepL.
NEW STUDY | Large gender gaps in funding – 4 recommendations for policy makers
- Published: 29 May 2024,
- 11:07 AM
- Updated: 29 May 2024,
- 5:56 PM
Women running businesses are more likely to be rejected for loans than men – and they pay higher interest rates. The difference is due to deeply rooted gender norms, according to a new international study. Entrepreneurship professor Malin Malmström gives her key recommendations to Swedish policymakers.
Globally, 1 in 3 businesses are owned by women. In 2019, the share of start-ups with at least one female founder was only 20 percent. One of the reasons for this is a lack of funding for women’s entrepreneurship.
– When the conditions for entrepreneurship are not equal, it leads to new innovations, new technologies and new processes being based mainly on men’s experiences and men’s needs, says Malin Malmström, professor at Luleå University of Technology.
In 2021, 2% of total investment went to women-only businesses.
– This figure has fallen in recent years. Six years ago, that figure was 4%.
Together with four other researchers, Malin Malmström has studied the large gender differences in financing of businesses and their causes.
Strong gender norms govern
The reason for the different funding conditions is due to deep-rooted gender norms. Studies have indicated that women in high-income countries, such as Germany and the United States, tend to experience less gender discrimination than those in low-income countries when it comes to funding.
– However, this result is simplified because we see that there are still challenges in high-income countries,” says Malin Malmström.
– To promote inclusive entrepreneurship, we need to understand the social norms.
Two key factors
Differences in access to business finance depend in particular on two factors: the political ideology that dominates in a country, and the degree of women’s empowerment.
– In conservative countries, we see that entrepreneurial women pay higher interest rates than entrepreneurial men. A conservative ideology maintains structural gender differences in society. Many also consider entrepreneurship to be a male pursuit that requires traditional male attributes.
The study also shows that in countries where women have made rapid progress in occupying high positions in society, such as in politics and business management, the conditions for business finance deteriorate.
– As women advance in society, the perception that they pose a threat increases. This leads to safeguards to protect social gender norms, for example by making it more difficult for enterprising women to finance their businesses,” says Malmström.
Contact malin.malmstrom@ltu.se
Recommendations to combat gender discrimination in financing businesses – in a Swedish context
- Reallocate public business funding. Today, the majority of public business funding is allocated to entrepreneurial men, similar to private fuinding of businesses. This is counterproductive to the goal of economic equality, as businesses run by women find it difficult to innovate, improve or become more efficient.
- Stop shaming profits in female-dominated industries. Businesses in female-dominated sectors such as education, health and social care receive the least public business funding. In many cases, this means that self-financing with own resources remains. The lack of public support, combined with the social stigma attached to profits in education, health and social care, means that few women want to start businesses in these sectors.
- Introduce more transparent reporting of public funding of businesses. In order to make the conditions for women and men entrepreneurs visible in the public innovation system, regulations are needed that require comparable information on the distribution of public funding between women and men entrepreneurs. This can be done as easily as society requiring accounting to follow standards.
- Normalize the participation of women in the highest positions. This can be done by achieving a critical mass of women in the highest positions. As women continue to have to navigate patriarchal structures, women are limited in their ability to pursue issues such as equal access to business finance. Organizational structures and recruitment tools can make it possible to increase women’s representation in leadership positions, and support those who have reached the highest positions.
More about the study
The study is called How to Close the Gender Gap in Startup Financing and was recently published in the Harvard Business Review. Researchers and authors of the study are Malin Malmström, Barbara Burkhard, Charlotta Sirén, Dean Shepard and Joakim Wincent. The study is based on data from Asia, North and South America, Europe and the Middle East.
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