The Female Entrepreneurship Fund (FEF) is a specialised investment vehicle that channels resources from institutional investors to support women entrepreneurs in the Central American Integration System (Sica) region, which includes Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama, and the Dominican Republic. Launched as a sub-fund of the Investing for Development Sicav, together with Luxembourg’s ministry of foreign affairs, directorate for development cooperation (MAEE), the Center for the Promotion of Small and Medium Sized Enterprises (Cenpromype), Total Impact Capital and Lux Development, the FEF aims to increase access to finance for women who run small and medium-sized enterprises.

Women are particularly affected by challenges such as climate change, food insecurity, socio-economic disparities and limited access to healthcare, education and economic opportunities, said Geneviève Hengen, deputy director in the department of development cooperation and humanitarian aid at the foreign affairs ministry, in her opening remarks to the event. “Luxembourg’s initiatives in central America emphasise climate resilience, social cohesion and socio-economic inclusion of women.” Ensuring access to inclusive financial services is “crucial” to achieve these objectives, and programmes include initiatives like training sessions for women entrepreneurs on business skills and financial literacy.

“The necessity for a dedicated investment fund for women was identified as a result of our long-standing experience in the region,” said Hengen. Women entrepreneurs--despite representing a similar or lower risk than male counterparts--often encounter significant barriers in accessing credit. The fund, which aims to channel $40m into financial institutions that prioritise gender considerations and industry best practices, “is designed to address the unique financial challenges often faced by female entrepreneurs in these countries.”

“For us, the Female Entrepreneurship Fund is more than just a financial instrument,” Hengen argued. “It can be a catalyst for more transformative change.” Addressing the specific needs of women entrepreneurs and providing them with the necessary resources and support can lead to “a more inclusive and equitable future.”

Women-led businesses more likely to be sustainable

Gender finance is important for economic competitiveness, said Carmen Niethammer, senior gender specialist at the European Investment Bank and member of the finance ministry’s Gender Finance Task Force, during a panel discussion. EIB research conducted in Africa has shown that women-led businesses are not only profitable, but also tend to invest more in human capital--meaning training and additional hiring. And not only that--there are also climate benefits, she argued. Women are more likely than men to start sustainable businesses.

“One figure that always get cited is the $1.7trn gender balance gap globally,” said Niethammer, referring to a 2021 figure. Closing the gender gap in labour markets would lead to an average of 8% increase in GDP globally, and closing the gender gap overall would bring that figure up to 25%.

There’s still a long way to go, noted moderator Francesca Randazzo, an expert in sustainable and innovative finance at LuxDev.

And to get there, it will be important to shift the focus from a “gender lens” to “transformation,” said David Cabrera, executive director at the Center for the Promotion of Small and Medium Sized Enterprises (Cenpromype). The business culture and financial culture need to be transformed, he argued, laying out five key “axes” of action: leadership and participation in business and politics; access to markets; access to finance; access to specialised business services; and the right to a life free of violence.

What makes FEF different?

For Miguel Herrera, chief operating officer of Total Impact capital, the “technical assistance component” of the Female Entrepreneurship Fund makes it different from other funds that he’s seen. Not only will the resources benefit women entrepreneurs through loans and capacity-building, but also benefit financial institutions in Central America, which “need to go through a transformation process.” This will come through working with local advisory experts on a variety of topics, from governance structures to hiring policies, marketing approaches or credit analysis to ensure that women are given a fair chance.

In a “nutshell,” the FEF is structured as a sub-fund of the Investing for Development Sicav and “will have various classes of capital, from junior to senior equity, which will be leveraged to provide senior and subordinated debt to the financial institutions in the region, who will--in turn--make loans to the women-led SMEs in competitive terms for the markets, in local currency or US dollars, whatever their requirements are, and in tenders that will allow them to grow their portfolios in an appropriate manner.”

On the “impact side, we hope to--in the first three to five years--be able to disburse loans to north of 1,000 deserving women-led SMEs in the region, and also to report back to this group and the public in general, how the practices have developed in these financial institutions over time,” explained Herrera. This is a “very important task” for this vehicle.

What should the FEF achieve to be considered successful?

We have to be realistic, replied Cabrera. This fund won’t solve the entire gender gap. Monitoring how the financial inclusion strategy evolves in the region will be important.

We also want to work directly with financial institutions, he added. Some 80% of credit officials of financial institutions are men--this is something that needs to be changed.

A “pioneering instrument,” the FEF will also help to make “visible” the commitment to boost access to finance in the region and “the responsibility of the partners in promoting the positive development of our region,” said Cabrera. “We [will] have this--really--effect on changing this culture of access to finance.”

Watch out for ‘pinkwashing’

Moderator Randazzo’s final question to the panel was: where is gender investing going?

Without a “magic wand” to see into the future, replied Niethammer, “my sense is that with the work that I’m seeing is that it’s much more now about ensuring that we are not ‘pinkwashing’ our investments.”

“There’s much more scrutiny,” she concluded. It’s more than just having a woman amongst the leadership. Now, there’s much more interest in indicators like internal employee practices or governance, and “in terms of trends, I think there’s much more now on the correlation between other sustainability criteria--so, climate action, environmental disclosure--together with gender.”