To boost women entrepreneurship in India, fintech loans should become more inclusive.
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Self-employment or entrepreneurship is the most important source of employment for women in India, with nearly three-quarters of women across the country relying on their own occupations to survive. That said, women-led industries in India are more likely to be informal, employing some workers, and concentrated in traditional low-growth, low-productivity sectors. These industries are far from technology-driven, male-led start-ups that seek to become unicorns and attract the interest of global investors.
The biggest consequence of this widespread informality and regional concentration of women-led industries is the barriers to access to formal financial media. Since formal institutions rely on collateral to evaluate credit history and creditworthiness, women entrepreneurs suffer due to limited land ownership and inability to develop network and banking relationships.
In India, the funding gap for women-led industries remains close to US $ 20.5 billion. Despite higher profit margins than male-owned enterprises - 31 per cent vs. 19 per cent - they face a double denial rate - 19 per cent vs. 8 per cent - and micro, small and medium enterprises (MSMEs) receive only 5 per cent of total loans.
The biggest consequence of this widespread informality and regional concentration of women-led industries is the barriers to access to formal financial media.
Due to the high concentration of women-led industries in areas deeply affected by the epidemic, such as textiles, retail, food processing and hospitality, this economic gap widened during Covid-19. A July 2020 survey found that 88 percent of women-led MSMEs used personal savings to meet their working capital needs.
Consultations conducted by Nikor Associates between August 2020 and December 2021 showed that only a few women-led industries were aware of government support for MSMEs and did not receive much support from formal finance channels to overcome the crisis. Whether it was micro jute makers in West Bengal, or textile and food processing entrepreneurs in Andhra Pradesh, even women in the self-help group faced serious capital difficulties during the epidemic and could not access affordable credit facilities from the public or private sector. Banks
The gender digital divide excludes women-led industries from formal sources of finance and government support systems. In India, women are 15 per cent less likely to have a mobile phone and 33 per cent less likely to use a mobile internet. Even if women are given access to their own or shared devices, their use is closely monitored by male relatives. As a result, women may not be fully acquainted with their equipment and deploy them for their business.
The level of digital adaptation especially the use of digital devices, digital payments, digital marketing, and inventory on the digital marketplace is low among Indian women entrepreneurs. Nearly 98 percent of women-led self-employed businesses do not use computers and less than 2 percent use the Internet. During the consultation, several women entrepreneurs shared that while they were using WhatsApp for leisure, they never considered using it for their business.
In such a scenario, the exponential growth of digital lending through the FinTech platform, especially for SME lending, offers an opportunity to meet the credit needs of women-led industries. Innovative companies such as MoneyTap, FlexiLoans, NeoGrowth and SBI e-Smart SME have developed online marketplaces and peer-to-peer lending platforms, offering customized, small-sized loans. These fast-growing channels cater to a large number of MSMEs who do not have an extensive credit history or collateral and manage risk through volume and diversification, thus making them ideal for women entrepreneurs.
Attracting women-led industries is also challenging for fintech lenders, as about 99 per cent of women-owned MSMEs are micro and informal and almost half are in rural areas thus lowering awareness levels.
A number of recent government initiatives, including the efforts of the financial services industry, have put India in a better position to bridge the gender gap in access to finance than other economies. In 2014, men were 20 percent more likely than women to have a bank account. However, due to the PM Jan Dhan Yojana, in 2017 the gap was reduced to 6 per cent. India ranks fourth in the world for women-founded fintech companies. Nearly one-fifth of fintech companies in India are women CEOs or founders. Notably, among people with digital access, the gender gap in fintech usage in India is the lowest globally — the proportion of connected women using fintech is slightly higher than that of men.
Nevertheless, analysis of loan disbursement data on 12 lending platforms suggests a significant discrepancy towards young, male graduates, with only 10 percent of borrowers being women (as of March 2022). These applications require a level of English comprehension and high comfort with a digital interface, creating a barrier for women businesses in light of the prevailing gender digital divide. Furthermore, attracting women-led industries is also challenging for fintech lenders, as nearly 99 percent of women-owned MSMEs are micro and informal and almost half are in rural areas thus lowering awareness levels.
Course of action
To ensure that women-led MSMEs are able to take advantage of the opportunities offered by the Fintech SME lending platform, the government and Fintech players need to work together to achieve India's vision of becoming a gender-inclusive global Fintech leader. .
Governments must make constant efforts to reduce the gender digital divide. The central government may consider expanding the centrally sponsored PMGDISHA scheme and adding gender targets. State governments can also create supplementary schemes to expand digital literacy of women and girls. Under the National Rural Livelihoods Mission (NRLM), women-led self-help groups can be trained to facilitate digital reliance in small businesses.
Governments must continue to work to reduce the digital divide between men and women. The central government may consider expanding the centrally sponsored PMGDISHA scheme and adding gender targets. State governments can also create supplementary schemes to expand digital literacy of women and girls. Under the National Rural Livelihoods Mission (NRLM), women-led self-help groups can be trained to facilitate digital reliance in small businesses.
To ensure the availability of reliable digital infrastructure across the country like BharatNet and PM WANI, government schemes need to be expanded to reduce barriers to digital access. 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 GIFT City, International Financial Services Center (IFSC) in Gandhinagar. Fintech companies investing in this hub should be encouraged and encouraged to ensure maximum representation of women in their employees. Such a model could then be replicated in a future Fintech hub.
Fintech companies in India should recognize business cases to invest in women entrepreneurs. Global studies show that female customers are more profitable and measurable segments for fintech, higher payback rates, reference rates and more loyalty. However, consultations with Nikor Associates have shown that women-led industries in India, especially those with less digital adoption, have distrust of online lending platforms. In such cases, Fin Tech can take a variety of measures to attract women entrepreneurs, including:
- Low Interest Rates: Special incentives and schemes can be given to women entrepreneurs. Annapurna Finance includes low interest group group loans, unsecured loans and instant loan disbursements offered by Flexiloans and LendingCart to women entrepreneurs.
- Alternative Risk Assessment Mechanisms: Indicators such as Kalidofin and iFinance are already being deployed by FinTech to identify proxy data and assess the creditworthiness of women entrepreneurs. The women-led fintech firm collects more than 10,000 data points on each customer's phone to create customized credit scores, using technology ranging from financial transactions to daily movements via GPS.
- Provide Support for Credit Applications: where women entrepreneurs can figure out how to improve their loan applications, such as Women's Money, a digital community founded by a woman-only fintech lender, which provides an education platform for your community by conducting sessions with financial experts.
- Collect Inconsistent Data: Understand the needs of men and women to create tailored products for women entrepreneurs.
- Taylor Sector-Specific Loan Products: Go beyond offering SME loans as an umbrella category and develop specific products for areas with a large concentration of women-led industries. For example, AyeFinance uses an industry cluster empowerment approach to gain insights and strong connections in specific areas to understand the background of its borrowers.
The fintech industry is poised for exponential growth, and like many other industries, it is all-inclusive. The combination of political will and corporate action can truly generate fintech debt and make it work for women entrepreneurs!
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