Women still get a raw deal in business and finance
Theresa May, the British home secretary, recently acknowledged that the UK would benefit from an additional 150,000 start-ups each year if women could launch businesses at the same rate as men.
The trouble is, they can’t. Start-ups need finance and banks treat women entrepreneurs less favourably than they do men. In my report “How Banks Treat Women Customers”, I show that across Europe businesswomen are less able to access loans from banks than businessmen. Male entrepreneurs in Europe are 5 per cent more likely to successfully get a loan for their business from banks than women. Those women that do gain access to loans in Europe are often subjected to higher interest rates – an average 0.5 per cent more on a business loan than men – or must accept more burdensome guarantees and collateral requirements
This is not just a case of the market cleverly weeding out the good from the bad. Women are not given worse terms because their businesses are more risky, smaller or in less attractive industries than men. The many studies I looked at explicitly compared like for like. It is not that women are worse at business than men and so present worse credit risks – the average venture-backed technology company run by a woman is started with a third less capital yet has annual revenues that are 12 per cent higher than those run by men.
Which begs the question. Why do banks treat women entrepreneurs worse than men? The inescapable answer is – because they are women.
My research also identified that pregnant women and women on maternity leave were being treated less favourably by lenders. It seems unthinkable in the 21st century that pregnant women are being denied loans on the basis of their child-bearing capacity. Yet in the course of my research I found over a two-year period, 200 reported cases in the UK and US of women being told that they would not be considered for a mortgage because they were pregnant or on maternity leave. This is across the industry, running the gamut of household lenders.
That banks could be discriminating against women customers should not come as a total shock. In the US, banks deemed single women poor credit risks until the 1968 Fair Housing Act. Until the Equal Credit Opportunity Act of 1974, women had to have a co-signor to become mortgage borrowers and before the 1975 Sex Discrimination Act in the UK, banks were legally able to reject a woman’s loan request because they were not seen as a good risk.
In the absence of clear legislation and a commitment to enforce it, discrimination historically has been the default. What makes my findings so disturbing is that today the legislation is in place. And on matters of discrimination it is unambiguous. According to the UK Equality Act of 2010, lenders cannot discriminate when providing financial services to women, including if they are pregnant or on maternity leave. International law requires states to ensure equal access for women “to bank loans, mortgages and other forms of financial credit.”
In the US, when cases of banks discriminating against pregnant women made the news last year, the US Department of Housing and Urban Development launched an enquiry. Two banks have already been taken to court. I am calling for similar investigations to take place in those countries which my research indicates have similar problems – the UK in particular. In the countries where banks are found to be acting unlawfully they must be prosecuted through the courts.
At a time when banks are thinking more carefully than ever about their lending practices, lenders must recognise the legal consequences that face them should they discriminate against women.
Governments are more empowered than ever before to have a say on how banks make their lending decisions. It is imperative that they make clear that women must be treated equally to men – and that they will take action if they discover otherwise. This isn’t only for reasons of equity. As Ms May points out, the success of Britain’s new businesses depends just as much on women as on men.