12/07/2016 12:13 PM IST | Updated 15/07/2016 8:27 AM IST

Gender Lens Investing: A Step Towards Woman-Friendly Capitalism

While the benefits of delivering finance to women-owned businesses to improve their lives and promote equality are well known, there is increasing recognition of the business case to do so. The women's segment is far less competitive, as it remains fairly untapped. It also has many positive characteristics, such as higher retention rates and lower risk. "Gender-friendly capitalism" is no longer a concept being discussed by feminists and development practitioners, but an emerging paradigm, as the financial community begins to actively include and target this segment.

Gender lens investing... is about unlocking capital towards products and services that benefit women (and girls).

There is evidence that the GDP growth of both emerging economies and developed ones can benefit from the inclusion of women in economic activity. Women entrepreneurs are changing the face of the global economy, contributing towards job creation and economic growth – yet, only an estimated 10% of them have access to the capital they need to grow their businesses. A global research study indicated that the collective credit gap for women launching and expanding ventures globally is an estimated US$320 billion. In India, women-owned businesses are heavily undercapitalized, with research indicating that approximately 73% of the total finance demand remains unmet. Women in India make up 40% of the population, yet account for only 10% of entrepreneurs, according to some estimates. This is mainly due to lack of access to capital and business skills beyond developing their products, which cause them to be left behind in the informal sector.

There is some good news, however, and we are witnessing innovations in instruments to reach the underserved segment of women entrepreneurs around the globe. We have seen changes in capital markets, with investors actively looking to foster positive social impact, while achieving financial gains simultaneously. One example is IFC's Women's Bond, launched as a financing tool to create financial and social impact by increasing women's access to capital. Alternative investment funds and development investment bonds are other mechanisms on the rise to stimulate investment that improves gender-based outcomes. Partnerships are increasingly emerging to accelerate and unlock capital flow to women-owned and women impact businesses. An example in India is the Indian Women Impact Alliance (IWIA), spearheaded by USAID, with GIZ, DFID and IFC joining forces to create a coalition of organizations operating in India to build capacities of women impact businesses, support data-driven advocacy efforts to accelerate gender lens investing and unlock capital flow to women-owned businesses. Gender lens investing is a potentially powerful driver to redirect capital towards this segment.

The use of gender as a category of analysis in investment decision-making allows investors to evaluate a potential pipeline without embedded biases...

Globally, gender lens investing is becoming an integral part of conversations among investors, financial institutions, donors, and governments. As it is still in nascent stages, there are many questions around its definition and approach. Is it about pink-labelling a process? Is it about an exclusive focus on women for investment decisions? The answer to both these questions is "no". Gender lens investing is not about excluding men and male-owned companies, but about amending a process that has implicit, albeit unconscious biases in it. Gender lens investing is about applying a lens to widen the focus on deal flow and not narrow it. It is about unlocking capital towards products and services that benefit women (and girls).

Specifically, gender lens investing is about increasing the access, availability and amount of capital for women entrepreneurs, women impact businesses and companies that promote gender equity in their workplace and supply chains. The use of gender as a category of analysis in investment decision-making allows investors to evaluate a potential pipeline without embedded biases that disproportionately favour men. When a gender lens is applied to the investment process, it is usually evident that there are disparities in capital allocation between men and women that explain why women have struggled to gain access to capital to invest in their businesses. In an increasingly competitive market, there is a need for investors to adopt innovative approaches, and gender lens investing offers a viable option. Gender analysis is integrated into financial analysis, altering the decision-making process and outcome. Established methodologies for investment assessment remain relevant, but applying a gender lens compliments the traditional approach and enhances the addressable pipeline of transaction opportunities.

There are much fewer women than men working in the investment world as decision-makers and this compounds the issues that women face when trying to access to capital. Gender lens investing forces investors to actively look at women-owned businesses and move out of their comfort zone.

While gender lens investing may not be a panacea, it can play an important role in unlocking capital for opportunities that would have not been visible if a traditional approach was adopted. It directs capital towards a significantly under-leveraged segment that can result in real economic and social gains. This upside of identifying hidden opportunities for both investors and investees illustrates that gender lens investing can have gains for women, as well as men, and is a viable step towards gender-friendly capitalism.

Photo galleryMeet Sarfaraz Khan, IPL's Youngest Player See Gallery