Executive Summary of the Report:Capital access programs and funds for women starting and expanding their businesses have grown dramatically over the past decade. These programs cover the spectrum from microenterprise to venture capital funds and serve highly diverse populations, from women on public assistance seeking a grant of a few hundred dollars to start a small or home-based enterprise to women seeking investments of a hundred million dollars to advance the frontiers of biotechnology. How have these programs fared? What do we know about "best practice" programs? What have these programs learned about overcoming constraints and what barriers remain?
It is toward answering these questions that the Ewing Marion Kauffman Foundation and the World Bank have taken a first step by supporting this Urban Institute study and a separate, parallel study of international programs supported by the World Bank's International Finance Corporation. The primary objectives of both projects are to gather data and compile a detailed report on specific access to capital initiatives focused primarily or exclusively on women business owners that exist nationally in the public sector, banking community, and among non-governmental organizations (NGO). It is expected that the results of this project will be of widespread interest in public policy circles, among financial services providers, and in the NGO community.
The Urban Institute polled experts in the field to identify programs primarily serving women that experts considered to be "best practice" in each category: non-profit organizations, private equity investment groups, and banks. From nearly 100 organizations that were identified, we chose programs that were selected by at least two experts and that either provided capital or had a direct link to capital providers. We also reviewed marketing, outreach, and loan programs of the 10 largest U.S. banks and the five largest banks in each of the five regions of the U.S.
Thirteen "best practice" programs and three "promising practices" (new programs that appear innovative but do not yet have a track record) are profiled in this report and are the basis for our analysis of key success factors, barriers, and constraints faced by women entrepreneurs, and our policy recommendations. We profile and analyze the programs to share best practices and lessons learned so that successful programs can be replicated. Our analysis of these best practice programs identifies six areas that can improve the strength of all capital access programs and expand their reach.
The major challenges for all capital access programs are scale, scope, sustainability, and effectiveness. There are hundreds of programs that provide services to small businesses and perhaps dozens that primarily serve women for access to capital. Interviews with experts in the field and our analysis of best practice programs suggests that, to be successful, organizations need to be fairly large, provide a wide range of services, and have strong linkages to the financial community. To achieve scale, local programs either need to grow to become a major provider within an urban service area or develop a "network model" in which they work with affiliates and other programs to service a larger, more sparsely populated area. At the national level, successful programs that target a very specific population (e.g., low-income women) have achieved scale by partnering with local organizations to deliver direct services.
Common elements of the successful programs we profiled are:
- Scale: programs were able to reach relatively large numbers of women through a variety of means such as becoming a large organization in a densely populated urban area or developing a network to serve a sparsely populated but large geographic area;
- Scope: providing a wide range of services enabled these programs to address the multiple needs that go far beyond just providing capital to women who are starting or expanding a business;
- Leadership: the programs had effective and committed leaders who were able to both manage internally and develop strong external relationships with the community and local businesses and financial institutions.
Sustainability is a difficult problem for the many programs that rely on the largess of firms and foundations and the political mandates of state, local, and federal governments. It is unlikely that many programs, with the exception of the venture capital programs and banks, can be completely self-sustaining from the return on the financial services provided. U.S. microenterprise programs are not able to achieve returns that can cover their costs. One reason is that all effective programs provide extensive and costly training, education, and support services—charging higher fees and focusing on profitable loans would limit the types of clients these programs could serve. These programs, we suggest, should be measured in terms of their effectiveness and efficiency and receive public and private funding on the same basis as other employment, training, and service organizations.
This study identified programs that covered the spectrum of populations, services, and types of capital. However, given the relatively few programs that were identified, it is likely that there are geographical gaps in availability of services across the country: best practice programs and a wide range of services and capital do not appear to be uniformly available in all regions. In addition, relatively few large institutions have active outreach programs. Although the major banks provide funding to community programs they do not appear to have active outreach programs. The three banks profiled here that have active outreach programs appear to be exceptions among large banks in the U.S. The findings of our assessment of best practice programs across the spectrum point to strategies and policies that could further the progress that has been made and meet the new challenges. The three communities we identify for new initiatives are the financial institutions, policy makers, and women’s and community organizations.
Banks and the financial community should focus on three areas:
- National banks need to establish alternative credit evaluation procedures and/or have community liaison loan officers who can handle individual loan evaluations outside of the credit scoring system;
- Banks should follow the models of the three banks we profile which develop formal relationships with targeted community programs (in this case women, but the model would also apply to other subpopulations)—the evidence suggests that these community programs, by screening and training, can refer clients with above average loan performance while reducing the loan transaction costs;
- The equity financial community should develop hybrid forms of equity investments that provide "patient capital" and support founding entrepreneurs.
Policy makers and the funding community can:
- Encourage and support programs to go to scale, such as the programs profiled have done through alliances, networks, and other means;
- Consider the benefit of tracking loans by type or referral source and changing the non-discrimination restrictions that limit collecting metrics;
- Support evaluation of microenterprise programs as a type of employment and training program and provide funding streams for microenterprise programs on the same basis as other employment and training programs. The microenterprise programs should be evaluated in terms of operational efficiency and effectiveness in helping low-income persons attain self-sufficiency, rather than whether the programs are self-sustaining.
The microenterprise, small business development programs and women's business organizations can improve services and access in a number of areas:
- Programs that are small should develop strategies for increasing scale and scope, using a number of different strategies such as those of the different organizations profiled here, developing entrepreneurship pathways through linkages and partnerships that assist women to move from one level to the next as their life situation or goals change, particularly from subsistence entrepreneurship to a small or growth business; Capital Access for Women: Profile and Analysis of U.S. Best Practice Programs 3
- At the national level, representatives of many programs should work with the large financial institutions to develop alternative loan processes that are more flexible than current credit scoring systems;
- Programs should expand their focus to assist sales and marketing development with their small business clients in at least two ways: (a) work at a national level with big box retailers and national chains to develop opportunities for small businesses; (b) develop network, tiered, and/or cooperative marketing strategies to allow small suppliers to continue supplying to large corporations.
The 13 programs profiled in the report demonstrate the diversity of approaches that can provide access to capital for women at different income levels and business goals as well as the gaps that still exist. The recommended strategic areas for program development and for policy will strengthen existing best practice programs and address the gaps and constraints still facing women entrepreneurs.
This report is intended to be a resource for capital providers and those in the women’s entrepreneurship community. The best practices profiled can help other programs assess ways to improve their programs as well as stimulate discussion among programs, capital providers and others about ways to expand opportunities for women entrepreneurs. The programs and policies of the past decade have created new opportunities for women entrepreneurs and provided a wealth of experience about successful strategies and challenges. Further research will provide greater understanding of barriers and ways to overcome them. Building on these successes and understanding the challenges provides the basis for continued program improvement and expanded opportunities for women.