Donald Lambert - Principal private sector development specialist, Asian Development Bank

It is important to put this problem into context. Women own 24 per cent of businesses in Vietnam. Imagine a company trying to strengthen its performance learning that 24 per cent of its operations were undercapitalised. Its logical and immediate response would be to ensure that all its activities had equal access to the necessary capital.

These constraints are not just a problem for women entrepreneurs. They are a problem for Vietnam. Being systematically undercapitalised, women-owned SMEs cannot maximise their contributions to Vietnam’s socioeconomic growth.

Unfortunately, the solution is not as simple as reallocating capital across corporate business lines.

There are early signs of a genuine solution. Research is needed to define the problem’s causes, scope, and solutions, and in recent years, there have been several excellent reports published in Vietnam on women’s entrepreneurship. It requires legislation, and Vietnam took an important step in 2017 with the passage of the Law on Support for SMEs, which defined women-owned SMEs and prioritised them for government support measures.

The solution also requires developing the capacities of women entrepreneurs. This will take different forms depending on the size and growth trajectory of the business, but ultimately, it should give women the skills to successfully transact with banks and other capital providers. Business chambers and development organisations including the Asian Development Bank (ADB) have been supporting such training.

To be truly effective, however, these measures also require transforming the banks themselves. Through a grant provided by the Women Entrepreneurs Finance Initiative, the ADB has been working with Vietnamese banks on gender-gap assessments that help them understand how their operations serve women and how they could be strengthened.

Some trends are emerging from this work, and they constitute a priority list for the broader sector.

The first priority is strategy. Once a bank’s board determines that women are a strategic priority, it launches a virtuous cycle. Training programmes need to ensure that bank staff understand explicit and implicit biases and the differentiated needs of women entrepreneurs. Because women can feel more comfortable transacting with other women, bank recruitment may need to attract more female candidates. Marketing materials may need to be revised and new strategic partnerships pursued.

Unfortunately, few boards have taken this strategic step. In an unpublished survey commissioned by the ADB, only 2 out of the 26 responding banks reported having a specific strategy for women-owned SMEs.

The second priority is data. Corporate strategies rely on performance indicators to inform the board and management whether their strategies are succeeding.

Vietnamese banks often distinguish between men and women in their retail portfolios but not in their SME portfolios. The unpublished survey found that only four out of the 26 banks regularly collected sex-disaggregated data, and only two of those had incorporated it into their core banking systems. The other two relied on manual tracking.

In most cases, introducing sex-disaggregated data does not require a new core banking system or a massive IT overhaul. Rather, it typically entails changing the reports that management information systems generate to include analysis of the portfolio by sex. In some cases, loan applications and monitoring forms will need to add questions about the sex of business owners and leaders, or branches may need to provide more granular information on why loans are rejected or when a client withdraws a loan application. But again, these are manageable changes.

The third priority is products. A constraint to banking more women-owned SMEs is that they are often a small percentage of a bank’s overall portfolio. Data allows banks to mine their portfolios to identify similar pools of clients. Banks can then structure products that meet the specific needs of these client pools. Without the underlying data, however, it would be a challenge to do such product tailoring profitably.

What would these products look like? It will depend on the institution and its clientele, but there are some general trends. For example, women-owned businesses are better savers and more reliant on those savings to fund growth. Tailored savings products could help these women save more diligently for expansion, thereby enlarging the bank’s deposit base. Another priority: women-run SMEs have less access to real estate that can be pledged as collateral. Loan products that emphasise cash flows and other forms of collateral would be helpful.

With banks under pressure to respond to the pandemic and introduce green banking policies that help Vietnam meet its COP26 commitments, it may seem inopportune to add another goal for good corporate citizenship.

Banking on women, however, is fundamentally different. Women are half of all potential clients. They are also the half that is underserved, takes fewer commercial risks, saves more, and defaults less. For bank boards, this is an opportunity to drive growth and profits while spurring positive social change.