Battaglia et al. 2023). More research is needed on how these innovations could be adapted to design products for larger businesses (Siegrist 2022).

# 4.2 Reducing the role of traditional collateral in lending decisions

Microloans using social collateral have increased access to finance for women microentrepreneurs. Other financial instruments that reduce the role of traditional collateral are also being tested to expand lending at larger loan sizes for women-led businesses.<sup>14</sup> These instruments include alternative forms of assessing risk (e.g., psychometric tests, cashflow-based lending, and digital footprints<sup>15</sup> ) and securing loans (e.g., invoice financing, revenue-based financing, capital leasing, asset-based finance, digital collateral,<sup>16</sup> microequity, and mutuality).

Psychometric tests can be used to predict probability of repayment and to reduce collateral requirements. Studies show that these tests have predictive power to distinguish differences in credit risk (Klinger et al. 2013, Bryan et al. 2022). Recent pilots in Peru and Ethiopia show promising effects of their use in assigning higher-value loans, with the pilots in Ethiopia focusing on women entrepreneurs (Arraiz et al. 2017, Alibhai et al. 2019b, Alibhai et al. 2022).<sup>17</sup> However, evidence is still limited on the impacts of using alternative methods of assessing lending risk and securing loans on business performance. A study in Ethiopia found positive impacts of psychometric score-based lending on access to credit and firm survival among womenled firms (Alibhai et al 2022).<sup>18</sup> Offering alternative ways to secure loans, such as asset-based finance (Bari et al. 2024), digital collateral (Gertler et al. 2021), or microequity and mutuality (Cordaro et al. 2022) may also help expand women’s access to credit. These products show promise, but so far, there is no causal evaluation estimating their effects on the performance of women-led businesses.

# 4.3 In-kind or targeted larger cash grants or loans

A series of experimental studies have found that cash grants to micro or small firms improve business outcomes primarily for business led by men (see Jayachandran 2021 for a review). One key reason is that women entrepreneurs often do not manage to invest in their own business because they use the funds to satisfy other household demands or family requests, or they invest in their husbands’ business (Jakiela

> 14 A complementary strategy to increase access to finance for women-led businesses is to increase women’s control over assets; for example, by encouraging joint titling for spouses. There is causal evidence that joint titling can increase women’s access to capital in agricultural settings (Ali et al. 2014).

> 15 Digital footprints, which include mobile phone usage, social media data, and digital transaction records from mobile money, banking, or e-commerce platforms, can be valuable for credit assessment. For instance, IFC (2022) describes how a digital distribution platform active in Indonesia and the Philippines plans to use the digital footprint of women-owned firms to refine its credit-scoring algorithm.

16 Digital collateral refers to a digital technology that enables the lender to temporarily disable the use of the product serving as collateral.

> 17 In Africa, uncollateralized high-interest rate loans of small size offered via mobile money have shown large uptake rates (Robinson et al. 2022). However, concerns arise from opaque loan terms and hidden costs, coupled with the low financial literacy of many clients (Brailovskaya et al. 2021).

18 Alibhai et al. (2022) collaborated with microfinance institution in Ethiopia to randomize the offer of uncollateralized loans among 131 women who had passed a psychometric test. The study found that the women offered loans significantly increased their access to formal finance and were more likely to keep their business open during the COVID-19 pandemic, although there was no significant improvement in their business outcomes.

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