Empowering women’s access to credit for inclusive economic growth

Women entrepreneur

By Manoj Singodia and Kinkini Roychoudhary

Over the past 50 years, banking penetration as evidenced by the surge in per capita bank deposits to income ratio has grown significantly. And while this indicates growing financial inclusion, disparities remain stark when it comes to women’s access to credit. There has been a perceptible increase in access to credit from 7% in CY2017 to 14% in CY2022, however women still constitute only 28% of the total borrowers in India.

A similar gender disparity is observed in business lending as well. Despite demonstrating better loan utilization and repayment, lower delinquency levels, and higher credit quality, women face a loan rejection rate of nearly 19% by credit institutions as compared to 8% for men. The primary reason for this is a mere 33.2% participation of women in the formal workforce compared to 77% men, which results in lower contribution to household income and financial decision-making. Moreover, women have a lower incidence of house ownership in India – 42% of women own a house compared to 62% of men – indicating a constrained ability to provide collateral among women loan applicants.

The women cohort continues to perform better in loan repayment, however, the retail outstanding growth amongst women has not kept pace with their counterparts. As per our estimates, there is a sizable opportunity to potentially grow this portfolio for women by threefold by 2030 if the government and financial institutions undertake focused initiatives to bridge the existing gap. Moreover, investing in women’s skill development and education can help bridge the gap. In the latest union budget, the government of India committed $36 billion for women empowerment across health, education and skilling.

To harness the opportunity and reduce the credit access gap, banks, microfinance institutions, and government, need to collaborate and work on the below imperatives:

1. Underwriting for women borrowers: While there are ongoing efforts to create credit assessment tools with the use of psychometric screening, “Know your customer” data and social referencing to capture credit invisible consumers in India, there can be a more concerted effort towards this segment. With increasing digital touchpoints, banks need to focus on scaling the adoption of scoring measures for underwriting women borrowers with limited credit history. Globally, banks have developed alternative risk assessment mechanisms leveraging machine learning and AI to establish credit worthiness of women without sufficient credit history. This is achieved by capturing consumer data through mobile phone records, utility bills, and social media presence.

2. Customizing loan offerings for women MSMEs and gig workers: Banks and NBFCs must explore an expanded set of loan offerings customized to solve the challenges that underserved women borrowers face. These can include customized credit offers provided in partnership with platform aggregators supporting female gig workers and leveraging data-driven insights to offer pre-approved credit to women with consistent earning^]. Similarly, insights such as shopping patterns and search history derived from third-party data providers can help determine specific needs and offer life stage-specific personalized financial products such as micro maternity loans and insurance products for expectant mothers.

3. Enhancing awareness and gender sensitivity: Despite several government interventions aimed at promoting credit among women borrowers such as the DAY Yojna and Vitta Sakhis, awareness remains low, with only 17% of women entrepreneurs aware of these programs compared to 35% men^. Anecdotal evidence also indicates that women are more likely to engage with financial institutions and borrow more when assisted by female representatives. While 53% of banks in India have implemented an ESG strategy that includes initiatives for women borrowers, there is a pressing need to create a more gender-sensitive environment^]. This can be achieved by increasing female representation, particularly in sales roles, to foster greater accessibility and trust among women borrowers.

Banks must launch targeted awareness campaigns and informative sessions to educate women borrowers about beneficial policies and products. Initiatives like E-shakti and Tablet Didi are equipping women-led enterprises digitally, while the new EASE guidelines have improved service excellence by 10% in three months, facilitating banking services closer to home for women in remote areas. To maximize these benefits, continual training and incentives for front-line staff are essential to actively engage with potential women borrowers.

4. Establishing a risk capital fund for women-led ventures: Such initiatives could reassure financial institutions about lending to women-led businesses. This would increase the confidence associated with borrowed capital, making it easier for women to access credit without requiring a male co-signatory or collateral. The Ministry of Finance has already made efforts in this direction by encouraging states to consider further lowering stamp duties for properties purchased by women.

These initiatives can go a long way in giving women the ‘credit’ they truly deserve. As increasing number of women join India's formal credit market, financial institutions have the potential to empower them by expanding access to credit opportunities and thereby enabling truly inclusive growth of our economy.

(The authors - Manoj Singodia, MD and Lead - Financial Services, Accenture in India and Kinkini Roychoudhary, MD and APAC Lead, Accenture Development Partnerships.)

Views are personal, and do not represent the stand of this publication.