Financial inclusion is considered a key enabler to reduce extreme poverty and boost the economic and productive capacity of an individual, leading to a better life. A rise in digital innovation has set in motion a metamorphosis that has the potential to further advance financial inclusion. A study by the members of Grameen Foundation India talked about the life-changing impact of financial inclusion and digital solutions on those who are excluded from the formal financing institutions. The study found that while most villagers in Jhusi, a village on the outskirts of Allahabad, were struggling to make ends meet, only a few families, like Rampati and her husband, were able to support the education of their children after receiving loans from a microfinance organisation. The organisation ned across the state of Uttar Pradesh and served over 200,000 poor women. Access to microfinance enabled Rampati and her family to start small-scale goat farming. In the absence of banking facilities, Rampati was provided access to credit by digital solutions. This not only gave Rampati the opportunity to track her income and expenses, but also allowed her to avoid visiting the bank too often, stand in long queues and worry about carrying cash.
Financial inclusion enables an individual to accumulate savings and improve their productive capacity. This is crucial for women empowerment as women generally experience unequal divisions of labour and lack control over economic resources and financial instruments. Financial empowerment of women creates a ripple effect in their community because they tend to reinvest their money for the betterment of their lives. A Harvard Business Review study states that women in emerging markets reinvest 90 percent of every dollar earned into “human resources” – education, nutrition and health – compared to only up to 40 percent of every dollar earned by men. Financial inclusion and empowerment of women can thus have far-reaching socio-economic impact. The International Monetary Fund shows that closing the gender gap could increase GDP by an average of 35 percent leading to significant macroeconomic gains.
According to the World Bank’s Global Findex Database 2017, about 76 percent of women in India have an account with a formal financial institution. However, this figure is not a true indicator of their ‘financial inclusion’. The accounts opened under Pradhan Mantri Jan Dhan Yojana (PMJDY) are on a decline. As of September 2019, 13 percent of them are zero-balance accounts and 17 percent are inactive. Despite a large number of women opening bank accounts, the gender gap is evident in the credit market in India. A Goldman Sachs Global Investment Research Report found that loan rejection rates for women-owned SMEs in India were almost double than those owned by men. This is because unemployed women are traditionally meant to handle domestic affairs whereas men are held responsible for household finances. The ability of women to provide collateral is further constrained as women are given much lower shares of family property as compared to men. This is substantiated by the fact that even though women constitute 42 percent of the agricultural labour force, only two percent of the land farm is owned by them.
Over the years, as the traditional banking sector has remained partially successful in extending its services to low-income and vulnerable groups, fintech has emerged as an industry disruptor. A 2018 research showed that after China, India ranked second globally with percentage of fintech users at 57.9 percent. The appetite for digitisation is increasing in India with increased mobile penetration, which is expected to reach 90 percent by 2020. Fintech companies could provide a safety net (such as credit, savings or insurance) to alleviate risks that marginalised sections of the society – particularly women face on day to day basis. It has also been accelerated by the schemes and campaigns promoted by the government.
Notwithstanding the inactive accounts’ argument, thanks to the PMJDY, about 357 million individuals who never had a bank account, now have bank accounts in their name. Of these, 53 percent are women account holders. The PMJDY and Direct Benefit Transfer scheme have eased the process for fintech platforms. The United Payments Interface (UPI) has catalysed this process further. UPI was used by 92 banks and recorded over 1.15 billion transactions worth INR 1.91 trillion in October 2019. Additionally, increased spread of the internet along with recognition of peer-to-peer lenders as non-banking financial companies by the have encouraged fintech startups.
A recent study has shown that mobile savings have bolstered women’s socio-economic status. A Randomised Control Trial in Tanzania gave women entrepreneurs in two cities access to a mobile savings platform, M-Pawa. Some women also received simultaneous 12-week training on enhancing business skills. It was found that women in the M-Pawa group saved three times more money weekly than women in the controlled group, while those in the M-Pawa plus business training group saved almost five times more.
Fintech start-ups are also empowering women and other vulnerable groups in India. For example, a fintech start-up provides low-literates with user-friendly digital interface to reduce their reliance on text and western iconography. Another one resolves the cumbersome tech solutions for kirana stores with the help of ‘voice-based’ solutions. Several fintech companies also provide banking-plus solutions like health insurance and savings to people without technical competency. Unlike banks, fintech companies, through the use of fintech and Artificial Intelligence, can customise and design instruments according to the requirement of the user.
The promotion of micro-entrepreneurship through fintech can further integrate women in the economic cycle. In order to promote financial inclusion and eradicate poverty in Bangladesh, Professor Mohammed Yunus introduced the system of microcredit through the Grameen Bank in 1983. Grameen Bank small individual loans without any need of collateral. The model was an enormous success and helped service several underserved women, illiterates and unemployed. However, with time costs for small transactions increased and individuals started to plunge into debt traps due to high interest rates. In this case, Fintech in the form of mobile banking solutions (MFS) – if integrated with microfinance institutions (MFIs) – can be instrumental in addressing poverty. With extensive infrastructure, MFIs like the Grameen Bank provide a working framework for MFS. In Bangladesh, 59 percent of merchants are using MFS. MFS can provide better connectivity between customers and employees, reduce cost of transactions and foster innovation. A few Indian fintech platforms are already supporting MSMEs and SMEs that are working with rural women in industries such as handicrafts, food and healthcare in India. Fintech startups are using technology to promote entrepreneurship amongst rural women by extending differential financial solutions and enabling them to invest through low interest microcredit. They also give out loans to small and medium businesses. The start-ups often use end-to-end mobile apps that process smartphone-based financial solutions.
In Africa, a fintech company uses technology to aggregate data for holistic profiling of clients and helps fund education for girls. The data includes a student’s family information and attendance record, which helps them identify girls at the risk of dropping out of school and release funds specially earmarked to prevent them from dropping out. Mobile platforms like Better Mama, Better Pikin (BMPB) in Nigeria offer micro savings along with health and life insurance services for specific lifecycles, such as expectant mothers.
It must be noted, however, that fintech is not the panacea for financial inclusion for women. There are several issues that plague the course. Women more than men face barriers to mobile phone ownership. Therefore, along with fintech, there needs to be a well-rounded approach which includes improving infrastructure at a macro level, providing financial literacy at a meso level, and a change in the attitude and support by the government and formal banking sector at a micro level. India can adopt streamlined, customised platforms that integrate a gender lens to meet specific needs of women at different lifecycles. This should be done in an enabling regulatory environment with appropriate security measures to ensure ethical and secure data handling. Fintech-enabled financial inclusion can help women in developing a better psychological state by enhancing their sense of self-worth, financial independence and the right to control their life.
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Shruti Jain was Coordinator for the Think20 India Secretariat and Associate Fellow Geoeconomics Programme at ORF. She holds a Masters degree in Public Policy and ...
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