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The relationship between financial inclusion and profitability of female-owned Small to Medium Enterprises (SMEs) has attracted attention in the literature as policy-makers seek to understand the influence of financial inclusion on profitability. SMEs are an integral part of the economy in developing countries, and play a crucial role in economic development. SMEs contribute around 45% of total employment globally, and up to 33% of Gross Domestic Product (GDP) in emerging economies (Peer, Goland & Schiff, 2010). Therefore, monitoring their performance is important for policy formulation and economic growth. SMEs face higher operational and growth constraints than larger firms, severely inhibiting their performance. Among these constraints, financial inclusion has been identified as the major barrier.
It is estimated that the total unmet demand for credit by all formal and informal SMEs in developing economies stands at around $US2.1 to $US2.6 trillion while globally the figure was between $US 3.2 to $US 3.9 trillion. This reflects a sizeable 30 to 36% of the current outstanding SME credit (McKee, Stein, Nowinski, Stern, Daneshvar, Alvarez & Cantu, 2013). Overall, approximately 70% of all SMEs in emerging markets lack access to credit finance (Peer et al. 2010). There is evidence that these enterprises have been unable to scale and achieve their potential primarily because of poor access and non-use of the required financial products and services.
Wasihun & Paul (2010) also noted that micro-enterprises are important to women especially in African countries, as they provide opportunities for self-employment, which represents a chance to exploit their potential. Kalpana (2016) revealed that female-owned SMEs are steadily growing all over the world, and positively contributing to household income and growth of national economies. IFC& McKinsey (2011) estimated that female-owned SMEs represent approximately between 8 to 10 million formal SMEs in emerging markets, which is around 31 to 38%. Despite the increasing recognition of female-owned SMEs’ contribution to economic growth, financial inclusion remains a challenge for them. According to the Global Financial Inclusion (GFI) database of 2014, even women in the high-income Organization for Economic Cooperation and Development (OECD) countries had 20% less success in borrowing from a financial institution than their male counterparts. In Zimbabwe, the financial inclusion gender gap between men and women has remained subdued at 9% since 2011(RBZ, 2019).
In Zimbabwe, SMEs contribute approximately 70% of the country’s GDP and are capable of uplifting the livelihoods of more than 70% of the population (RBZ, 2011). SMEs occupy around 75% to 80% of business space and this includes the informal sector, providing approximately 80% to 85% of jobs across all sectors of the economy. However, in Zimbabwe, although the financial inclusion gap, according to 2017 Global Financial Index data, has narrowed to 7 percentage points, it is still tilted to the disadvantage of women. At 52% in 2017, women-owned bank accounts lagged behind that of men, which was 59% in the same period.
It is vital to note that the opportunity cost of this gender gap is significant, given that women entrepreneurs’ economic impact has a multiplier effect. Thus, it can be noted that considerable output and productivity gains can be achieved if there is equal access to productive resources for both men and women. Furthermore, it is estimated that failure to achieve Sustainable Development Goal (SDG) target 5 on the promotion of gender equality and empowerment of women could reduce per capita income growth rates by approximately between 0.1 to 0.3 percentage points (Baliamoune-Lutz & McGillivray, 2017). In addition, closing the credit gap in emerging economies by 2021 would increase average per capita growth rates by 12% by 2030 (Stupnytska et al. 2014). Therefore, it is critical that this study sought to understand the link between financial inclusion and the profitability of female-owned SMEs in Zimbabwe.