Expert Speak India Matters
Published on Jun 13, 2022
To boost women’s entrepreneurship in India, fintech lending should become more gender-inclusive.
Engendering fintech lending to power women’s entrepreneurship

Self-employment or entrepreneurship is amongst the most important sources of employment for women across India, with nearly three-fourths of women across the country depending on their own businesses for survival. Having said that, women-led enterprises in India are more likely to be informal, nano enterprises employing a few workers and concentrated in traditional low-growth, low-productivity sectors. These enterprises are a far cry from the technology-driven, male-led start-ups striving to become unicorns and attract the interest of global investors.

One of the biggest consequences of this widespread informality and sectoral concentration of women-led enterprises is that it results in barriers to accessing formal channels of finance. As formal institutions rely on credit history and collateral to assess creditworthiness, women entrepreneurs are disadvantaged due to limited land ownership and the inability to network and develop banking relationships.

In India, a financing gap of nearly US $20.5 billion persists for women-led enterprises. Despite having higher profit margins than male-owned enterprises—31 percent vs. 19 percent—they face double the rejection rate—19 percent vs. 8 percent—and receive only 5 percent of total lending for micro, small and medium enterprises (MSMEs) from the public sector banks.

One of the biggest consequences of this widespread informality and sectoral concentration of women-led enterprises is that it results in barriers to accessing formal channels of finance.

These financing gaps only grew during COVID-19, owing to the high concentration of women-led enterprises in sectors deeply impacted by the pandemic, such as textiles, retail, food processing, and hospitality. A survey in July 2020 reported that 88 percent of women-led MSMEs utilised personal savings to meet working capital needs.

Consultations by Nikore Associates between August 2020 to December 2021 revealed that only a few women-led enterprises were even aware of government support for MSMEs, and they received little support from formal finance channels to tide over the crisis. Be it, micro jute makers, from West Bengal, or textile and food processing entrepreneurs from Andhra Pradesh, even women belonging to self-help groups faced severe working capital constraints during the pandemic and were unable to access affordable credit facilities from public or private sector banks.

The gender digital divide further alienates women-led enterprises from formal sources of finance and government support systems. In India, women are 15 percent less likely to own a mobile phone, and 33 percent less likely to use mobile internet. Even if women are given access to their own or shared devices, their use is monitored closely by male relatives. As a result, women are unable to fully familiarise themselves with their devices and deploy them for their businesses.

Digital adaptation levels–especially use of digital devices, digital payments, digital marketing, and listing on digital marketplaces remain low amongst Indian women entrepreneurs. Almost 98 percent of women-led own-account enterprises do not use computers and less than 2 percent use internet facilities. During consultations, several women entrepreneurs shared that while they use WhatsApp for leisure, they have never considered using it for their business.

In such a scenario, the exponential growth of digital lending, particularly through fintech platforms for SME lending offers an opportunity to meet the credit needs of women-led enterprises. Innovative firms like MoneyTap, FlexiLoans, NeoGrowth, and SBI e-Smart SME have developed online marketplaces and peer-to-peer lending platforms, which offer customised, small-sized loans. These fast-growing channels are largely found to be catering to MSMEs lacking extensive credit histories or collateral and managing risks through volumes and diversification, thus making them ideal for women entrepreneurs.

Attracting women-led enterprises is also challenging for fintech lenders, given that nearly 99 percent of women-owned MSMEs are micro and informal, and almost half are in rural areas—thereby, leading to low-awareness levels.

Several recent government initiatives combined with efforts from the financial services industry, place India at an advantageous position vis-à-vis other economies to address gender gaps in access to finance through fintech. In 2014, men were 20 percentage points more likely than women to have a bank account. However, thanks to the PM Jan Dhan Yojana, this gap shrunk to 6 percentage points in 2017. India ranks fourth in the world for female-founded fintech firms. Almost one-fifth of the fintech firms in India have a female CEO or founder. Notably, amongst people with digital access, the gender gap in fintech usage in India is amongst the lowest globally—with a slightly higher proportion of connected women using fintech than men.

Yet, an analysis of loan disbursement data from 12 lending platforms suggests a significant skewness towards young, male graduates, with only 10 percent of borrowers being women (as of March 2022).  These applications require a level of understanding of English and high comfort with the digital interface, creating a barrier for women enterprises in light of the prevailing gender digital divide. Moreover, attracting women-led enterprises is also challenging for fintech lenders, given that nearly 99 percent of women-owned MSMEs are micro and informal, and almost half are in rural areas—thereby, leading to low-awareness levels.

Course of action

Moving forward, to ensure that women-led MSMEs are able to capitalise on the opportunity offered by fintech SME lending platforms, there is a need for governments and fintech players to work together to achieve the vision of making India a gender-inclusive global fintech leader.

Governments need to spearhead sustained efforts to bridge the gender digital divide. The Central government can consider expanding the centrally-sponsored PMGDISHA scheme, and adding gender targets. State governments may also devise complementary schemes for expanding the digital literacy of women and girls. Training to facilitate digital adoption amongst small businesses can be imparted to women-led SHGs under the National Rural Livelihoods Mission (NRLM).

Government schemes for ensuring availability of reliable digital infrastructure throughout the country such as BharatNet and PM WANI would need be expanded to reduce digital access barriers. Public private partnerships can be leveraged to expedite the delivery of digital infrastructure and expand Wi-Fi access.

The Government of India and Gujarat have supported the development of a world-class fintech hub at the International Financial Services Centre (IFSC), GIFT City in Gandhinagar. Fintech firms investing in this hub should be encouraged and even incentivised, to ensure greater representation of women in their workforce. Such a model could then be replicated in future fintech hubs.

Fintech firms in India should recognise the business case for investing in women entrepreneurs. Global studies show that women customers are a more profitable and scalable segment for fintechs, with higher repayment rates, reference rates, and more loyalty. However, consultations by Nikore Associates show that women-led enterprises in India, particularly those with low digital adoption, have a distrust of online lending platforms. In such a scenario, fin techs may adopt a variety of measures to attract women entrepreneurs including:

  1. Lower interest rates. Special incentives and schemes may be offered to women entrepreneurs. Examples include group loans to women entrepreneurs at low-interest rates by Annapurna Finance, collateral-free loans, and quick loan disbursal offered by Flexiloans and LendingKart.
  2. Alternative risk assessment mechanisms, such as identifying proxy data and indicators to assess the creditworthiness of women entrepreneurs, as are already being deployed by fintechs such as Kaleidofin and AyeFinance. Tala, a women-led fintech firm, uses technology which aggregates more than 10,000 data points on each customer's phone, from financial transactions to daily movement via GPS to build a customised credit score.
  3. Provide support for credit applications where women entrepreneurs can understand how to improve their loan applications, such as the digital community established by Mahila Money, a women-only fintech lender, which provides a learning platform to its community by holding sessions with financial experts.
  4. Collect gender-disaggregated data and truly understand the needs of different genders to create tailored products for women entrepreneurs.
  5. Tailor sector-specific loan products. Go beyond offering SME loans as an umbrella category and develop specific products for sectors with a larger concentration of women-led enterprises. For instance, AyeFinance uses an Industry Cluster Enablement approach to gain insights and strong connections within specific sectors to understand the background of its borrowers.

The fintech industry is poised for exponential growth—and unlike several other industries, it is poised to be gender-inclusive. A combination of political will and corporate action can truly engender fintech lending, and make it work for women entrepreneurs!

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Areen Deshmukh

Areen Deshmukh

Areen Deshmukh is a Research Associate at Nikore Associates. She holds an undergraduate degree in Economics from Lady Shri Ram College for Women University of ...

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Mitali Nikore

Mitali Nikore

Mitali Nikore is an experienced infrastructure and industrial development economist and founder of Nikore Associates a youth-led policy design and economics think tank

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