Women entrepreneurs in rural Nigeria: formal versus informal credit schemes

Abstract

Purpose

This study examines why low-wealth women entrepreneurs forgo mobile enabled money services and government supported micro finance for informal, community-based revolving loans in rural Nigeria.

Design/methodology/approach

Thematic analysis of 25 interviews with women in rural, south-west Nigeria. Entrepreneurial ecosystem theory, in the gendered context of micro finance and community-based lending, is employed.

Findings

This study explains the paradox of forgoing seemingly accessible mobile enabled credit, and formal credit schemes (e.g. micro-finance programs) for informal, one-on-one borrowing. Convenience and trust-based relationships with respected community members ease the burden of time scarcity and vulnerability associated with formal capital. Flexible terms, autonomy, self-reliance and knowing who one is dealing with make Esusu a preferred source of finance. Findings are discussed in the context of gendered entrepreneurial ecosystems in which participants conduct business.

Research limitations/implications

The sample is not representative of women entrepreneurs in rural Nigeria. Survivorship bias is acknowledged. Further research is needed on the psychological risks of informal capital and the benefits of community-based lending.

Practical implications

Measures to scale mobile enabled credit, without commensurate interventions to address time management and other structural issues that confront women traders, limit their utility and impacts. Power differentials between women traders and lenders must also be considered in the design of lending products. Training of women traders and formal lenders should incorporate curricula about gender gaps in capital markets and systematic gender challenges to support entrepreneurs who seek to grow beyond subsistence enterprises.

Originality/value

This study documents decision criteria that motivate informal rural women traders to employ community-based revolving credit or Esusu. Findings inform measures to increase women entrepreneurs' access to capital in a rural sub-Saharan Africa contexts.

Citation

Peter, W. and Orser, B. (2024), "Women entrepreneurs in rural Nigeria: formal versus informal credit schemes", International Journal of Gender and Entrepreneurship, Vol. 16 No. 4, pp. 602-623. https://doi.org/10.1108/IJGE-03-2023-0053

Introduction

This study examines why women entrepreneurs in rural Nigeria forgo mobile-enabled credit and micro-finance programs in favour of Esusu, a traditional community-based form of lending (Etoto or Isusu in Eastern Nigeria; Adashi in Northern Nigeria). The research advances two questions: (1) What motivates women entrepreneurs to use informal, community-based loans; and (2) What strategies can enhance rural women entrepreneurs’ access to credit? The findings offer evidence about the gendered nature of entrepreneurial ecosystems, including cultural and institutional barriers that stymie opportunities for rural women traders. We also identify sub-optimal aspects of formal lending, mobile money services and informal community-based loans.

We chose the focus of study for several reasons. First, some journal editors caution that academic studies convey a “narrow conceptualization” of an entrepreneur, thereby disregarding “unconventional” entrepreneurs (Bakker and McMullen, 2023, p. 1). Development agencies, such as the World Bank, report that policymakers and researchers often overlook informal, non-registered entrepreneurs resulting in the underrepresentation of women in policy and programming, especially in Africa (Brenton et al., 2013). Yet, informal women traders are important contributors to Sub-Saharan Africa’s (SSA) economy. Within SSA, 65% of women in the non-agricultural labour force are self-employed in the informal sector (World Bank, 2018). Women conduct approximately 70% of informal cross-border trade in Africa (UN Women, 2023). Lack of research and broad generalizations about gender inequalities miss the specificities of constraints that women traders may face (Brenton et al., 2013, p. 2). Insights are needed to understand the challenges of women traders and strategies to support those who seek to transition from informal to formal credit in emerging market economies (Igwe et al., 2018).

Second, the 2023 G20 New Delhi Leaders’ Declaration (p. 25) prioritizes “women’s inclusion into the formal financial system by strengthening their access to economic resources, particularly through digital finance and microfinance.” In 2023, the G20 summit welcomed the African Union as a permanent member. However, there remains a disconnect between academic research, policy and measures to support women entrepreneurs’ access to financial capital (Coleman et al., 2019). Studies often overemphasize individual deficiencies rather than structural inefficiencies (OECD, 2021) and gendered entrepreneurial ecosystems that disadvantage women entrepreneurs (Brush et al., 2019; Motoyama et al., 2021). Micro-lending institutions, for example, can adopt local cultural biases that stymie women’s entrepreneurship (Drori et al., 2020). Regulatory and banking institutions often govern supplies of capital without consideration of gendered nuances. Within Nigeria, women face constraints in accessing capital that are “deeply rooted cultural and religious norms,” reducing their participation in economic activities (Adebayo, 2022, p. 18). Understanding the experiences of informal women traders in Nigeria informs the literature about rationales for collective lending and response strategies to circumvent constraints that limit access to finance.

Third, the literature of entrepreneurial finance is biased towards developed economies (Newbery et al., 2017). A systematic review of the literature on women and entrepreneurial finance identifies 81 articles from between 1989 and 2019 (Serwaah and Shneor, 2021). Most studies were situated in North America, primarily the United States. Six were conducted in Africa. Kivalya and Caballero-Montes (2023) observe, in another systematic review of literature on gender, women’s economic empowerment and micro-finance, that most studies are situated in Asia (67%), specifically India (35.6%) compared to Africa (26%) and South America (7%). The authors of this paper call for more research on alternative microfinance services, research that considers cognitive, regulatory and normative dimensions of lending. Only two studies identified in the literature review examined the use of Esusu among Nigerian entrepreneurs (Thomas, 2015; Adekanla, 2021). Only one of these studies considered gender, despite substantive evidence about systemic gender-related barriers to accessing capital within emerging market economies (Grantham et al., 2019). This study offers insights about the gendered nature of formal and informal (community-based) loans, including the risks women experience using Esusu.

There remains a dearth of research about why rural women traders prefer community-based loans, foregoing formal (institutional) lending. As Adekanla (2021) notes, criticism of industry-sponsored studies that offer “grandiose claims surrounding the role of mobile money in promoting women’s financial inclusion” (Kim, 2021, p. 311) compounds the limited research. As well, most of the research is atheoretical and conducted by large, multi-lateral institutions engaged in promoting financial services, such as the World Bank, Global System for Mobile Association or by researchers funded by such institutions (Kim, 2021). This study differs by offering independent analysis regarding the criteria associated with the use of community-based informal lending. To do so, we employ an entrepreneurial ecosystem perspective (Spigel, 2017) to identify how culture and institutional constraints reproduce gendered conditions in lending.

Literature review

Finance as a barrier

“Access to financial capital is widely recognised as one of the most pressing challenges faced by women entrepreneurs” (OECD/EU, 2018; cited by OECD, 2021, p. 102). Gender bias in lending practices is reported. Illustrative practices include investor preference for industries in which women tend to be under-represented, finance networks that are dominated by men with the effect of excluding women, gender-blind finance programming and the absence of country-level policies to increase women entrepreneurs’ access to capital. In emerging market economies, women often face additional constraints associated with cultural norms (e.g. son bias) and regulatory practices (e.g. civil liberties, security previsions that limit rural bank branches) (World Bank Group, 2019; UN Women, 2023; Kivalya and Caballero-Montes, 2023).

Preference refers to differences in values, motives and ways of doing business (Bardasi et al., 2011). What can be perceived as preference in financial decision-making is often influenced by the gendered interrelated context of entrepreneurship and lending. Sector preference among entrepreneurs, for example, links to access to assets, sector knowledge, education and mobility (Berguiga and Adair, 2021). Compared to male entrepreneurs, women are more likely to redirect earnings from a micro-enterprise to the household and children as part of household subsistence income (Kevane and Wydick, 2001). The preference to invest profits back into the household versus business relates to poverty, domestic power structures and availability of universal education and healthcare (e.g. cash needed to pay for children’s education). Research also documents gender differences in the size and scope of businesses. For example, after controlling for country and sector influences, the sales volumes of women-owned micro, small and medium-sized enterprises (MSMEs) in SSA are 13% less than those of male-owned firms (Bardasi et al., 2011). Compared to entrepreneurs in developed economies, women in SSA are more likely to cite concerns about nutrition, access to healthcare and education (Hanson, 2009; Minniti, 2010) and to be necessity-based entrepreneurs (Serwaah and Shneor, 2021). Given such constraints, women report access to capital as a primary barrier to business development (Ayogu and Agu, 2015). It is not surprising that gender related constraints in access to and the use of finance are reported (OECD, 2021). Relative to male peers, women entrepreneurs in SSA operate with lower levels of formal and informal capital, including financing needed for equipment, inventory and property. Male-owned firms in Africa report more than six times the capital investment of women-owned enterprises (World Bank Group, 2019). Interrelated demand factors, such as the willingness to take risk (Garba, 2011) and such supply-side factors as decisions of governments to support male-dominated sectors (for example, in manufacturing and construction) further reflect gender caps in capital markets. Willingness to take risk (a demand-side factor) is positively and significantly associated with Nigerian women entrepreneurs’ motive to expand their businesses; yet, after controlling for business owners’ willingness to take risks, limited access to capital was seen to hinder business growth by approximately 40% (Garba, 2011).

Sources of capital

Two categories of capital available to MSMEs: formal and informal capital. Formal sources of capital include commercial banks, microfinance institutions (MFIs), banks, cooperative societies and government finance programs. Also, direct-to-borrower platforms enable third parties to advance small, uncollateralized loans to entrepreneurs in emerging economies (Galak et al., 2011). Informal sources of capital include personal savings, loans from family and friends and unregulated lending through lending groups, savings collectors, Esusu or rotational saving schemes and village community organizations (World Bank, 2018).

Since the 1970s, MFIs have introduced microfinance programs to support entrepreneurs’ access to capital (Drori et al., 2020). Wellalage and Thrikawala (2021) find micro-credit programs facilitate loan applications and approvals among women-owned businesses. Micro-credit programs help to overcome self-selection bias and lending discrimination (Berguiga and Adair, 2021). Other positive impacts include higher levels of savings, productivity, economic security, enhanced self-confidence, dignity, food security, better nutrition, access to medications and mobilization of collective strengths of rural women entrepreneurs (Banerjee et al., 2015).

This study debates the emancipatory potential of development finance, given such negative impacts as exploitative lending techniques, forceful loan recovery practices and cases of over-indebtedness (Hulme and Arun, 2011; Hudon and Sandberg, 2013 cited by Kivalya and Caballero-Montes, 2023). Other negative consequences, such as domestic backlash when traditional gender roles are disrupted, high defaults in savings and loans schemes and a trust deficit described as “limited confidence among women on the ability of the (remote) local government to support their economic activities” (World Bank, 2018, p. 28) further diminish the value of micro-finance schemes. Historically, micro-credit programs tended to exclude young and unmarried women, less educated women and the extremely poor (World Bank, 2018). The literature suggests that micro-credit schemes, without training, are not correlated with long-term profit or household income (Banerjee et al., 2015). Natile (2020) argues that the impacts of microfinance are limited due to the failure to acknowledge differential power relations and social and cultural norms that reinforce gender discrimination and inequalities. Thus, it is difficult for many women to meet formal micro-credit program collateral and saving requirements. Even when gender discrimination is acknowledged in programs and policy, the absence of measures and investment targets can result in resources that disproportionately benefit men.

In recognition of the limitations of development finance, collaborations among MFIs, government and banks are creating such new products as bank accounts with pre-deposited amounts to encourage savings and to help women navigate financial systems (International Labour Office, 2023). As well, World Bank and Development Bank of Nigeria are collaborating to advance the use of digital finance instruments. An example of this is the Access Bank’s Digital Cashflow Lending policy that offers unsecured loans based on assessment of a company’s incoming cashflow. Women Affinity Groups in Nigeria enable women to pool resources, loan each other money from joint savings accounts and combine resources as food and labour (World Bank, 2022). Digital finance (e.g. cash transfers) facilitates access to capital through transactions “without their husbands’ or male family members’ permission” (Kim, 2021, p. 2). Again, implications of differential power relations between women traders and financial service providers challenge programs that assume, without gender-based analysis, that digital finance resolves constraints limiting access to financial capital. Bateman et al. (2019) expresses caution in assuming universal benefits of digital finance to informal traders, citing substantial accumulations of wealth by service providers at the expense of low-wealth entrepreneurs. They also describe data mining as a contemporary form of resource exploitation without commensurate benefit to users operating in SSA.

Theoretical perspective

This study employs an entrepreneurial ecosystem (EE) framework to consider multiple institutional, regulatory, cognitive and normative dimensions associated with access to capital (OECD, 2021). The EE framework consists of six domains or elements: policy (leadership); finance (micro-credit); culture (social norms); supports (infrastructure); human capital (educational institutions) and markets (networks) (Isenberg, 2010; World Economic Forum, 2013). The perspective observes that entrepreneurial environments influence, and are influenced by, complex interactions among systemic conditions (networks of entrepreneurs) and framework conditions (social context enabling/constrains interactions) (Acs et al., 2017; Spigel, 2017; Stam and Spigel, 2016; Brush et al., 2019). The presence and interactions among the dimensions determine the success of entrepreneurial ecosystems (Stam, 2015).

The EE framework shifts the focus of research “from entrepreneurs seen as ‘economic supermen’ to entrepreneurship seen as a process embedded in a particular social and local context (Steyaert and Katz, 2004)” (Cavallo et al., 2019, p. 1304). Research predicated on an institutional perspective, for example, tends to characterize women as homogenous and equal (Henry et al., 2021). The EE framework offers a dynamic, multi-dimensional lens (Manolova et al., 2017) to examine the gendered experiences and perceptions of entrepreneurs and to observe structural conditions that influence women entrepreneurs’ access to capital. This includes regional, social and cultural contexts that constrain or enable access to capital, as gender is evidenced in institutional, organizational and individual levels (Brush et al., 2019). The EE framework therefore considers processes and outcomes that impact financial decision-making. A 19-country study of women’s entrepreneurship, for example, observes that gender gaps in financial markets are associated with a range of cultural and regulatory constraints, such as, family and tax policies, that discourage women’s labour market participation and entrepreneurship (OECD, 2021). In summary, the EE framework addresses limitations of studies that focus on founder deficiencies by examining contexts and processes. The perspective supports critical assessment of gendered dimensions of EE that influence rural women traders’ decisions to employ Esusu in their businesses.

Context: rural Nigeria

This study focuses on informal women traders operating businesses in Osu, Ibodi and Iwaro in Atakunmosa West Local Government, Osun State, Southwestern Nigeria. This is for several reasons. According to the World Bank (2018), low-wealth, informal women traders tend to be excluded from micro-credit programs and research; however, the report does not explain their exclusion. As noted, most academic studies on entrepreneurial finance are situated in other geographic and cultural contexts (Serwaah and Shneor, 2021; Kivalya and Caballero-Montes, 2023). This study informs the literature about ways in which gender constraints are intertwined within formal and informal credit schemes and the implications for rural women entrepreneurs.

Nigeria

Women-owned businesses account for approximately 41% of small and medium-sized businesses in Nigeria (PwC, 2020). They are responsible for 43.1% of micro-business enterprises (World Economic Forum, 2022) or approximately 23 million entrepreneurs and 20% of MSMEs in the formal sector (PwC, 2020). Nigeria ranks 62nd among 65 countries with respect to Knowledge Assets and Financial Assets (MIWE, 2021). Sub-indicators for Knowledge Assets and Financial Assets include: finance access (operational financing, taxes, bureaucracy; venture capital availability); entrepreneurial finance access; women’s financial inclusion (percentage of females/percentage who have an account at a financial institution, who have a debit or credit card, borrowed or saved at a financial institution); government SME support (government entrepreneurship support and women’s tertiary education gross enrolment rate) (MIWE, 2021, p. 55). Adetunji (2017), for example, reports gender, income, education, urban–rural classification and age are associated with financial inclusion in Nigeria, where “being female” and living in a rural area are significantly and negatively associated with financial inclusion. This could be because their limited knowledge about finance hinders the abilities of many women to navigate banking (Nziku, 2016; Tende, 2016). Nigerian women are more likely than men to lack credit histories (Rao, 2015; Genesis Analytics, 2018). As well, historically, legislation has favoured men in terms of inheritance. Women own a fraction of land and buildings, and this contributes to the lack of personal assets to pledge as collateral (UNDP, 2018). Rural women are more likely to operate micro and informal businesses with limited access to capital compared to men in rural regions, or men and women in urban regions (Fate Foundation, 2021). Due to socio-cultural norms, women retain less personal wealth to invest in their businesses compared to men. Limited wealth reflects role expectations that women should prioritize child (dependent) care thus eroding time to expend on the business and earn income (Imhonopi et al., 2013; Sajuyigbe and Fadeyibi, 2017). Childcare and age have particularly significant impacts on Nigerian women (Akinbami and Aransiola, 2016; Aladejebi, 2020). Ironically, Zimmerman et al. (2020) report on negative impacts of women’s wealth accumulation, such as the manipulation of commercial assets for personal use by male partners and increase in gender-based violence.

The World Bank (2018) attributes high rates of gender inequality in Nigeria to institutional and market failures: “discriminatory social norms, information and knowledge asymmetries, non-competitive markets, and limited gender-inclusiveness in formal and informal institutions”. Adebayo (2022), in examining the entrepreneurial ecosystem for women in Nigeria, cites structural conditions including poor quality roads, access to electricity, Internet affordability and quality and regulatory barriers that stymie start-up and scale-up government.

Sources of capital in Nigeria

Personal savings and family contributions are primary sources of finance for micro-enterprises in Nigeria: 61.2 and 23.6% of businesses, respectively (Ogundiya et al., 2019; Oloyede et al., 2019). Compared to men, women entrepreneurs in Nigeria raise smaller amounts of capital (Fapohunda, 2012; Ng’weno et al., 2018; White et al., 2015). Many women prefer cash transactions. For example, GSMA (2022, p. 15) report that “preference for cash” is a primary reason for not owning a mobile money account (47%) versus “don’t know how to use [mobile money]” (26%) and “affordability” (13%). Rural women are also more likely to rely on informal and unregulated saving mechanisms compared to rural men, 25 versus 18%, respectively (World Bank, 2018). Gender gaps in use of financial institutions are larger in Nigeria compared to most SSA countries: only 27.3% of women and 51.4% of men in Nigeria report account ownership (World Bank Group, 2023). The World Economic Forum (2022) nonetheless asserts that women in Nigeria retain ‘near-equal’ rights as men in accessing financial services.

The OECD (2019) narrowly characterizes near equal rights: “Women and men have the same rights to open a bank account and obtain credit at a formal financial institution to women and men, without legal exceptions regarding some groups of women. However, some customary, religious, or traditional practices or laws discriminate against women’s legal rights”. Changes in banking and micro-finance regulations may help redress these gaps. In 2018, regulatory changes by the Central Bank of Nigeria enabled new mobile money players to emerge. Large-scale government measures have also been introduced to support women’s access to capital. The Central Bank of Nigeria, for example, has mandated regulations for the banking industry, specifying that 60% of MSMEs development loans be given to women borrowers, and that women should represent 30% of staff in microfinance banks. While these measures are encouraging, there are no enforcement mechanisms to ensure compliance. For example, between 2021 and 2022, Nigeria experienced 41% growth in the number of registered mobile agents (GSMA, 2023): yet only 13.9% of banks met the regulation for the 30% representation of women (PwC, 2020). It is not clear how such regulatory interventions demonstrably impact rural women traders.

Esusu

Given the historical absence of finance institutions in rural communities, Esusu is a traditional form of personal and commercial lending (Thomas, 2015). Lending is facilitated through social capital, deemed “the capital of the poor” (Woolcook and Narayan, 2000, p. 240). Ola-David and Osabuohien (2018, p. 67) describe Esusu lending “cooperatives” as:

a group of people team up to contribute a fixed and equal sum of money at specific intervals (i.e. daily, weekly, fortnightly, monthly or bi-monthly) enabling each member to collect the entire sum in rotation. When everyone in the group has benefitted from the pool, a new rotation cycle is launched.

Esusu is characterized by low transaction costs, ease of access, simplicity and flexibility in financial procedures (Olomola, 2002). Social lending networks are a strategy to acquire capital, particularly among low-wealth women who have been neglected by institutional lenders (Ogunrinola, 2011). According to Udry (1990, p. 267), “Contractual mechanisms to alleviate the difficulties posed by information asymmetries are not necessary because credit flows through paths that take advantage of the extremely free flow of information within a rural community”. The use of Esusu among women entrepreneurs in Southwestern Nigeria, for example, is associated with enhanced business performance, where capital is used for commercial and domestic purposes, such as business expansion and children’s education (Adekanla, 2021). Jerome (1991) observes that most villages and towns in Nigeria have such associations. To inform the research, the next section describes the sample of women entrepreneurs employed in this study.

Methodology

Sample

Potential study respondents were identified by using criteria that adhere to the definition of a women-owned business advanced by UN Women (Chin, 2017): at least 51% unconditional ownership by one or more women; unconditional control by one or more women over the long-term decision-making; day-to-day management and administration of the business operations and independence from non-women owned businesses. Data collection occurred between December 2019 and February 2020.

Primary data was gathered by means of 25 in-depth interviews lasting between 30 and 45 min. As there is no formal source of data (e.g. official records) to identify informal (unregistered) rural women entrepreneurs, a research assistant supported the recruitment of participants, identifying them at their places of business. Respondents were briefed verbally on the study’s purpose. Six women declined to participate. All interviews were audio-recorded in Yoruba, the respondents’ native language. A semi-structured interview guide incorporated questions about their business, perceptions about access to financial capital, awareness and use of financial support and training programs and strategies to enhance financial inclusion. Illustrative questions include: “Do you have a bank account with a financial institution or mobile phone service provider?” and “In the past 12 months, to what extent have you made a transaction with money from a bank account using a mobile phone?”. Participants were also asked to share their experience with formal microfinance programs. To examine the use of Esusu, we asked participants if they were familiar with this source of capital, or sources of capital from cooperative groups.

In-person interviews were translated verbatim into English by the bilingual, primary author of this study. We then employed thematic analysis, an approach used by Braun and Clarke (2006), to identify, analyze and report on common themes. Managing textual data was aided using N’VIVO 11. A two-coder approach enhanced reliability. The first step entailed independent reading and coding of the transcribed documents. Data were coded inductively to create the “first-level codes” and aggregated to “second-level codes” by the authors. Patterns in the codes and data were sorted into themes. Illustrative quotes were extracted. If there was disagreement in identifying emergent themes or quotations, discussion followed. Challenges associated with accessing financial capital were first examined. Themes were re-examined using the EE framework to guide the analyses. Specifically, researchers sought to identify conditions (elements) and processes, such as physical (e.g. infrastructure) and intangible (e.g. knowledge) assets, boundaries (e.g. psychological and geographic), networks and network effects, within the context of rural women entrepreneurs in Nigeria. How elements influence decisions, how informal and formal credit schemes are intertwined and impacts of these influences were considered.

Participants

All participants were formally educated and averaged 16 years in business: the majority of respondents had operated businesses for more than 10 years. Most, 92%, stated the primary sources of capital were personal savings, family and friends and informal lenders, including Esusu (Table 1).

Findings

Challenges with accessing financial capital group into three dimensions: cognitive, organizational and community. Cognitive dimensions capture psychological influences of financial decision-making. Organizational dimensions capture statements related to infrastructure and regulatory considerations. Community dimensions capture statements about connections, groups and networks. Each aggregate dimension and the associated sub-themes are described.

Immediate financial need framed the decision to borrow. Most respondents borrowed to cover pressing household and business cashflow obligations versus to finance business growth. A related cognitive theme was the perceived scarcity of time. In weighing the use of formal credit or mobile-enabled money services, scarcity mindset was evidenced in statements about the time needed to learn and monitor technology, participate in MFI programs (e.g. attend group meetings) and apply for capital with no guarantee of application acceptance. As respondent 22 stated, “I have not really had the chance and time to join any [co-operative societies].” With respect to formal credit, perceptions were often based on lived experience. As respondent 3 remarked, “Applications are cumbersome, full day of training and yet no funding … travel to meet government representatives.”

The association between formal credit and time scarcity was further illustrated in statements about time trade-offs, such as concern about taking time away from servicing customers, operating the business or managing the household. For example, four respondents cited lack of time to check phones while attending to customers as a reason to not use mobile-enabled credit. Two respondents stated they had no reason to learn how to use mobile money services given limited time to access digital banking information. According to respondent 14, “No, I don’t have that [mobile money app]. I don’t even have time …”. A related theme was the risk of wasting time. Examples of time wasted include the failure of financial service providers, including banks and government bureaucrats, to return respondents’ phone calls and respond to information requests, waiting in ques to apply for credit or micro-credit training, and time wasted if one needed to travel distances to access a bank (e.g. lack of financial infrastructure, such as local bank branches).

Respondents’ sense of self reflects statements about well-being, such as the desire to avoid frustration or disappointment of loan turn down, stress associated with limited knowledge about lending and feeling unrecognized (e.g. dismissive behaviour by lenders). As respondent 13 explained, “I don’t want to borrow a large amount of money that I won’t be able to have peace of mind.” Respondent 23 stated, “I don’t know what I will encounter when I get there”. For one respondent, informal asymmetry and lack of power were reinforcing conditions that undermined her sense of wellbeing. According to respondent 20, “You know information is power … but if you don’t have access to that information. How do you apply for it?”.

Social stigma is associated with accessing finance, characterized in statements about peer pressure, embarrassment or humiliation, such as if she was unable to repay her debt obligations. As respondent 19 stated, “If I should apply for a loan, and then there is no sales, and I am not able to return the money as at when due, then it will be an embarrassment.” Social stigma captured concerns about sexploitation and personal safety, such as when travelling to neighbouring villages to access a bank branch. As respondent 5 stated, “In Nigeria … especially as a married woman, who cannot agree to such sexual advances, so, I must look for other alternatives”. Several respondents explained that they resist social norms of acquiring formal debt. Respondent 22, for example, stated: “I have friends that are going into the bank to borrow money, but I didn’t allow that to affect me …”

The fourth psychological dimension was desire to retain financial autonomy. Most valued self-reliance. Respondents associated loss of autonomy with borrowing from distant institutions or faceless mobile money service providers. Rather than enabling economic freedom, for some respondents the acquisition of formal debt was associated with loss of agency. Many expressed the preference to remain small rather than compromise their financial autonomy. Nine respondents, for example, stated that they prefer to earn income rather than deal with lenders, regardless of how little they earn. As respondent 22 noted, “I actually ran away from the problem by not going to the bank to borrow money”.

Organizational dimensions

Maintaining financial control was associated with formal and informal credit schemes. This included financial exposure to fraudulent borrowing of a group member (if required to cover default payments), fear of business closure if unable to repay debt and a sense of isolation. As respondent 21 stated, “If no member repays the money owed, then I will be the one to repay or all the other members”. Several respondents stated that they alone bore the risks of debt rather than institutional lenders. Sense of vulnerability was not limited to the relationship with formal lenders. Need to maintain financial control was evidenced in cautious relationships with third-party loan facilitators. As respondent 23 explained, “People helped us to do it [apply] online and they collected money from us, but we didn’t get any money …”.

Financial knowledge captures challenges associated with limited financial confidence, such as understanding how to approach and acquire credit, and manage the lending relationship. Accessing formal credit was perceived to be complicated and hence, not worthwhile. As respondent 23 stated, “I am usually afraid as I don’t know what I will encounter when I get there … so that is why I didn’t seek financial support”. Several respondents perceived that formal debt was relevant to only large businesses versus their micro-enterprises. Five respondents assumed formal credit was associated with goods production and not with informal retail sectors.

Terms of lending reflects statements about the cost (e.g. high interest rates), collateral requirements and documentation required to open a savings or credit account (e.g. business registration, building lease). Respondent 3 explained, “They will ask me to bring collateral … They can say documents of building and I don’t have”. Perceptions about discriminatory lending practices were also cited. Two respondents believed that banks charge women borrowers higher interest rates than men borrowers. Four respondents cited limited revenue or lacked cash to deposit in a bank account and hence, saw no reason to open an account or deal with an institutional lender. Several respondents stated lack of interest in credit was due to their inability to make regular deposits or payments.

We asked participants if they had heard about, or were beneficiaries of, the Nigerian federal lending scheme TraderMoni that targeted micro-scale traders and artisans. Four respondents had heard about the program but had not applied because the amount of money available was too small to help their businesses. According to respondent 16, “I didn’t apply for it [Trader Moni] because there is nothing that 10,000 naira ($32.26 CAD) can do for me. I have four children and I am a widow …”. No respondent reported a formal credit scheme, such as bank or MFI, proactively approached her about financing.

A fourth theme was religion. One of 25 women respondents raised a concern about interest payments on borrowed money, a practice forbidden in Islamic doctrine. Respondents 20 stated, “Most of the microfinance banks usually charge interest and as a Muslim that I am, it is in our doctrine that we should not move near anything that will make us to pay interest …”

Community dimensions

A dominant challenge associated with community was lack of social capital. This was relevant given almost half (n = 12) of the respondents perceived that provision of formal credit, such as acquisition of government funds, was based on pre-existing relationships or high-level referrals. According to respondent 1, “In securing any government assistance, until you know big people in their midst, you cannot get anything”. This perception underscored statements about favouritism, misuse of public funding and Godfatherism. As respondent 20 stated, “The issue of Godfatherism … the government of whom you know … most of the things is not on merit … it is about who you know. … It is people at urban areas that will benefit from it… Most people in the rural areas won’t be able to benefit”. Hence, access to formal credit was seen to be predicated on who you know rather than program eligibility, borrower need or merit of application. Such perceptions fuelled a lack of trust in formal credit schemes, particularly government funded measures to finance women entrepreneurs.

Secondary themes associated with community were instability and advocacy. Instability reflects statements about frequent changes in government leadership and subsequent changes to micro-finance programming, including application criteria, program format and repayment schedules. Frequent changes resulted in confusion about program availability and eligibility, and hence, waste respondents’ limited time. Finally, some respondents held the view that while financial institutions, government and banks hire women, few women occupy leadership positions. Consequently, few bureaucrats or senior lenders advocate on behalf of rural women entrepreneurs. Respondents cited the need for more financial decision-makers that support programs to increase rural women entrepreneurs’ access to capital.

Perspectives about Esusu

Embedded within the discussion about challenges of accessing financial capital were perspectives about Esusu. Respondents described how this source of informal credit entails an Alajo (lender) who collects cash remittances on a daily or weekly basis and earns a small commission for each transaction. Borrowers make payments, contributing what they can afford, with no predetermined repayment schedule. Availability of capital—on an as needed basis—addresses borrowers’ preconceptions about onerous terms of formal lending (e.g. high interest rates charged by banks, including on unused capital) and complicated loan application processes (e.g. need for identification, collateral, formal business registration). As respondents 12 stated: “Whenever I need money, he will give me out of the one I have saved”. Once repayment is completed, the Alajo returns the balance of capital to community contributors, subtracting a service fee, typically equivalent to one round of collections. Respondent 25 stated “If 10 people contribute 500 naira [$1.27 US] for instance, then the total contribution made will be 5,000 naira [$12.70 US]… So, they will give one person the total 5,000 naira in a week, and then give another person the next week and that is how they will be rotating it”.

The Alago can also act as a quasi-savings account, that is, as a consolidator of many contributions where small amounts of cash are exchanged. Small cash transactions were preferred over larger amounts expected from institutional lenders. As respondent 12 stated, “I am doing daily contributions. At the end of the month, whatever I gather from the daily contribution, I will deduct out of it for my business, for my own needs … and the remaining one I will save it …” Interestingly, several respondents had acted as borrower and collector of funds, illustrating their expanded role in the lending process.

The advantages of Esusu are evidenced in statements about the flexible nature of the financial relationship. Borrowing was based on trust between lender and borrower. Lenders’ reputations and established relationships within the community addressed concerns about institutional anonymity. Respondent 7 explained, “The person that they will use as leader will be someone that they know every in and out about. The person will be someone that the members know the house and everything about. … They will know that the person cannot run away. And then anyone that indicates that she is interested will join the group and will start contributing.” Convenient in-person exchanges addressed concerns about scarcity of time and personal safety that prevented some respondents from travelling to distant lenders. For example, lenders (Alajos) visited borrowers at their places of work and in their homes.

The terms of lending were known and understood. There were no requirements to access capital, such as pledging collateral, signing a contract or identifying a guarantor. Trust-based relationships were bolstered by personal interactions that occurred on a regular and sometime daily basis. As respondent 23 explained, “No, they do not ask for those [collateral, guarantor] except that they usually know where we are working [place of work]. The borrower/lender relationship was viewed as reciprocal, where several community members benefit from these transactions. The process of Esusu therefore harmonized lender and borrower interests by serving the needs of fund contributors, Alajos and borrowers.

Informal, convenient and flexible Esusu transactions were advantageous and problematic. Concerns centered on the vulnerability of borrowers. The exchange process was uncontrolled, without formal oversight, regulations and standards. For example, absence of regulations resulted in unclear mechanisms for dispute resolution and risk of fraudulent behaviour. Lack of security was associated with an erosion of personal privacy, given that financial exchanges occurred at respondents’ place of business and in their homes. As respondent 23 stated, “They do not ask for those [collateral, guarantor] except that they usually know where we are working [place of work]”. Trust based lending can be fragile. As respondent 7 stated, “So many people are not so faithful about the whole thing, so they will scatter. And since the government is not in charge of controlling such stuff, there is no one that one can call to help one.”

A final theme associated with vulnerability was limited resources. Poverty, constrained wealth within the local community and the presence of multiple borrowers within a fund limited the amount of available capital. Amounts of cash exchanged were therefore very small. The personal and local nature of the financial transactions limited opportunities for the borrowers to access formal lenders with deeper pockets, benefit from micro-credit programs with financial literacy training and participate in financial networks populated by potential role models (e.g. export-oriented rural women traders). Esusu therefore reinforced the invisibility of the traders, including recognition as key contributors to their local economy. Figure 1 summarizes themes about the challenges of accessing financial capital. Figure 2 summarizes the associated advantages and disadvantages of Esusu.

Discussion

This study poses two questions: (1) What motivates women entrepreneurs to use informal, community-based revolving loans; and (2) What strategies can enhance rural women entrepreneurs’ access to credit? This micro-environmental study offers novel insights about the connections between formal and informal lending schemes and gendered elements of entrepreneurial ecosystems. In this section, a summary of key findings follows. We then identify illustrative gendered dimensions and interactions within the entrepreneurial ecosystem. Implications for theory, policy and research are outlined. Study limitations are then described.

Rural women entrepreneurs in Southwestern Nigeria frame financial decisions within the context of immediacy, sense making, adherence to social norms and desire to retain autonomy. Organizational level challenges include maintaining control, limited financial knowledge, perceived onerous terms of lending and in one case only, religion. Islamic doctrine prohibited payment of interest. At the community level, challenges include limited social capital, political and finance instability and advocacy, characterized as absence of women in financial leadership positions.

Gendered dimensions and interactions are evidenced among all six elements of the entrepreneurial ecosystem (culture, supports, human capital, markets, finance and policy). For example, culture, infrastructure and policy underlie the challenge of immediacy. In the patriarchal society and culture of Nigeria, husbands are expected to be head of the family and to be consulted on domestic and commercial matters. Lack of family-friendly policies and infrastructure, such as daycares and universal education, precondition time scarcity as the women straddled their roles as caretakers and breadwinners. Embedded in statements about need for autonomy and perceived benefits of Esusu are gendered domestic obligations. Esusu afforded borrowers flexible terms, including adjustable repayment schedules to address unforeseen circumstances and changes in household needs. Esusu was also convenient as it enabled respondents to conduct financial exchanges in their homes. Adherence to gendered cultural norms, such as traditional role expectations (e.g. women are responsible for the household, child and eldercare), dilute personal agency and hence, the ability of the rural women traders to garner the benefits of formal credit schemes or mobile-enabled money services. From a demand-size perspective, these observations help to explain why micro-credit programs tend to exclude women and the extremely poor (World Bank, 2018).

Gendered cultural norms extend to the broader society, as demonstrated in statements about feeling dismissed, unrecognized, exploited and harassed (labelled sense making). Gender nuances underlie human capital and are embedded within entrepreneurial supports. The study findings, for example, challenge gendered stereotypes about rural women traders who are often profiled as illiterate. Most respondents were educated, older and experienced (e.g. had run businesses for many years). Yet, respondents acknowledged their limited knowledge about formal credit (e.g. bank application processes). Formal education, including for some in post-secondary institutions, does not include entrepreneurship training. Lack of relevant training limited the entrepreneurs’ financial knowledge. Supports within entrepreneurial ecosystem augment human capital (e.g. stakeholders, such as mentors, financiers, business services and government programming). Absence of local supports, braced by senses of time scarcity, vulnerability and invisibility, weaken the capacity of the women traders.

The rural setting amplifies gender-related constraints. Infrastructure refers to physical facilities, such as roads and brick-and-motor financial institutions. A “well-developed physical infrastructure promotes connectivity, the mobility of goods and people, and creates an environment conducive to entrepreneurship” (Azmi and Azmi, 2023, n.p.). Conversely, concerns about personal safety in transit, costly transportation and lack of time discouraged travel to banks located in distant communities. Furthermore, influencers, such as politicians, bankers and bureaucrats typically reside in urban areas. This is important given perceptions that access to government funding is associated with who one knew (e.g. Godfatherism and favouritism). Infrastructure also includes networks. Lack of women-focused networks (such as, rural women trader associations) limited opportunities for the women to build social capital, learn from peers, circumvent knowledge gatekeepers and conduct women-to-women trade.

In response, Esusu is a culturally adaptive source of capital that responds to the time constrained circumstances of rural women entrepreneurs. Trust within the lending relationship is paramount. Trust and social collateral counter preconceptions about the potential of time wasted when dealing with formal lenders and exploitation by third-party service providers. Trust-based financial transactions are conducted within the borrower’s culture (e.g. mother tongue) and traditions (e.g. respect for prominent community members) supporting a sense of reciprocity (e.g. neighbours helping neighbours) and retaining capital and wealth within the community. These finding are consistent with Woolcook and Narayan (2000) who observe that Esusu is facilitated through social capital.

Unstated “shadow costs” of Esusu, such as loss of privacy and opportunity to access substantial credit, training and networks, were of less importance. Yet, gendered culture continued to define “who” is the lender and “who” is the borrower. Within the local culture, relatively powerful male lenders, described by respondents as respected members of community, establish the terms of lending, initiate financial exchanges and govern dispute resolution. Hierarchical privilege of men (lenders) is therefore sustained. Vulnerabilities, identified in formal credit schemes, extend to Esusu. For example, the ongoing need to borrow is, in part, the product of low earnings of subsistence enterprises. Hence, most of the women traders were situated in an ongoing cycle of borrowing and hence, at the bottom of the socio-economic pyramid. Esusu reinforced a gendered status quo.

Implications for theory

Brush et al. (2019, p. 393) caution that theoretical and empirical studies about entrepreneurial ecosystems implicitly assume that “all entrepreneurs have equal access to resources, participation, and support, as well as an equal chance of a successful outcome”. The study findings confirm that this is not the case. The experiences of rural women traders in Nigeria offer evidence of the gendered dimensions within entrepreneurial ecosystems. These insights further motivate the need to rethink causal relationships among physical and intangible assets, infrastructures, institutions, human capital, sources of knowledge and network effects (Audretsch et al., 2019). Brush et al. (2019, p. 397) contend gendered conditions can be “hidden” through informal practices, rules and norms. This study documents examples of subtle (e.g. dismissive behaviour of formal lenders) and obvious (e.g. time scarcity due to domestic obligations) gendered interactions within formal and informal credit schemes. Gendered cultural conditions fuel immediacy, sense making, need for autonomy and sense of time scarcity, such as experiences of time wasted in ques to participate in MFI gender-based finance programs. Gendered conditions are further evidenced in role structures of Esusu, as men (lenders) assume positions of power over women (borrowers). Such findings suggest that theory must be adjusted to consider how gender is ascribed within all six dimensions or elements of entrepreneurial ecosystems.

Implications for policy

The study findings inform the design of responsive forms of lending targeted at rural women traders. This includes more precise policies. For example, in assessing the entrepreneurship ecosystem in Nigeria, the Fate Foundation concludes that, “For Women and Youth-led businesses, specific institutional support is important to unlock their potential” (2021, p. 61). This recommendation implicitly assumes that women entrepreneurs are a homogenous group. Failing to specify identity factors, such as region, age, education and years of business experience, lends to investing in young, primarily urban male businessowners.

None of the study respondents had been approached by a bank for credit. This observation indicates a need for proactive outreach, that is, engaging women traders at their places of work. Lack of trust in formal credit schemes suggests the value of supporting women-led lending through community-situated schemes. To enhance financial inclusion, policies should reinforce the value of women-led development through investment funds structured on Esusu principles, including programs designed and managed by local women traders. Per diems, inaugural deposits of funds and other financial incentives are needed to offset the loss of time and earnings required to engage in programming. Formal credit schemes are encouraged to adopt flexible repayment schedules to align with the fluctuating financial needs of rural women traders. Sense of being exploited in lending relationships suggests the need for formal credit schemes to limit or vet third-party intermediaries (e.g. in delivering training and in the selection of fund recipients). Informal credit schemes should eliminate need for lending group members to cover others’ default payments.

Governments and micro-finance institutions are encouraged to engage male leaders in discussions about the social-economic impacts of culture, discrimination, women’s subordination and the marginalization of rural women traders. Creating public awareness about the contributions of women traders in local and national economies is warranted. This includes role models and testimonials that challenge dated stereotypes about rural women traders. Finally, the Government of Nigeria should discourage cultural appropriation of the term ‘Esusu’ by multi-national corporations (e.g. used to brand lending programs) as this practice lends to market confusion about the structure and beneficiaries of this form of community-based lending.

Implications for research

Building on an emergent area of academic inquiry (Brush et al., 2019), more studies are needed to determine how micro-entrepreneurial ecosystems disadvantage “unconventional” entrepreneurs (Bakker and McMullen, 2023, p. 1), such as Black African women traders. The findings present evidence that well-intended measures to scale formal micro-finance schemes and mobile enabled money services, without commensurate interventions to address gendered dimensions of entrepreneurship ecosystems, limit their utility and impacts. This study offers an initial inventory of gendered antecedents of trust-based lending to inform such studies. Coleman et al. (2019) call for policies that support inclusive ecosystem models as a means for increasing access to financial capital. The study findings are consistent with this recommendation. The findings indicate that gender influences pervade all six dimensions of the entrepreneurial ecosystem framework.

Study limitations

The sample of 25 participants is not representative of women entrepreneurs in rural Nigeria. The data reflects survivorship bias, evidenced in the tenure of the sample businesses. Bias of retrospective data is also acknowledged. While the lead investigator is fluent in participants’ native language (Yoruba), errors may have been introduced in the translation to English. To address this the researchers employed the services of a local (Nigerian) educator to validate terms. The methodology did not enable the researchers to examine ways in which perceptions about lenders change over time, place and context. This is relevant given the pandemic’s impacts on lending, including uptake of digital credit to avoid personal contact.

Conclusions

The study findings challenge formal and informal credit schemes that assume, without gender-based analysis, that targeted lending resolves constraints that limit women entrepreneurs’ access to capital. The findings concur with The World Bank (2018) that attributes high rates of gender inequality in Nigeria to financial market failures, including gendered social norms, information and knowledge asymmetries and limited gender-inclusiveness in formal and informal institutions. The findings augment the recommendations of the 2023 G20 New Delhi Leaders’ Declaration (p. 25) that prioritize “women’s inclusion into the formal financial system by strengthening their access to economic resources, particularly through digital finance and microfinance”. Informal credit schemes, such as Esusu, are vital sources of capital for rural women traders. The traditional form of community-based lending addresses several shortcomings of digital finance and microfinance. Esusu is not, however, without its limitations, such as reinforcing gender power differentials in the lending relationship. Financial inclusion requires identifying and addressing gendered dimensions within entrepreneurial ecosystems, including gendered dimensions identified in this study, doing so may assist rural women traders in extracting themselves, and their businesses, from ongoing cycles of borrowing and poverty.

Figures

Figure 1

Challenges assessing financial capital

Figure 2

Perceived advantages and disadvantages of Esusu

Table 1

Profile of participants

		Firm			Owner
	Age	Goods, services	Emps	Age	Education	Marital
1	15	Cassava, yam, plantain	0	62	B.A. Languages	Married
2	13	Typesetting, photocopying scanning, laminating	5	46	High School	Widow
3	5	Soft drinks, cosmetics	1	37	High School	Single
4	29	Cassava, plantain, banana, melon	0	71	High School	Widow
5	2	Beverages: soya, zobo, millet	0	47	Diploma	Married
6	20	Farmer: cocoa	0	68	Not educated	Married
7	10	Fashion design, tailoring	0	60	Diploma	Married
8	15	Provisions, toiletries, drinks	3	55	High School	Married
9	20	Manufacturing bags	5	51	B.Sc	Married
10	33	Kitchen utensils	0	59	B.Sc	Married
11	20	Tailoring	0	43	High School	Married
12	4	Restaurant, beverages bar	4	44	B.Sc	Married
13	24	Soft drinks, bread, palm wine	1	52	High School	Married
14	5	Bean pudding (moi-moi)	2	45	Diploma	Married
15	11	Hairdressing, bottled drinks	3	42	High School	Married
16	14	Groceries	0	46	High School	Widow
17	10	Hairdressing	2	36	High School	Single
18	3	Boutique selling work clothes	0	29	Diploma	Single
19	12	Educational materials, office supplies	0	43	Certificate	Married
20	24	Fabrics and fashion accessories	6	58	M.Sc	Married
21	20	Foodstuff, cooked and raw food	3	48	Elementary	Married
22	15	Rice, beans, yam, maize, potatoes	1	49	High School	Married
23	16	Computer accessories	5	46	High School	Married
24	30	Clothes, shoes	0	61	Elementary	Married
25	30	Fruits, vegetables	0	63	High School	Married

Source(s): Authors’ own work