India’s financial inclusion mission should aim to close gender-gap

An IFC Study, Financial Inclusion for Woman-Owned MSMEs in India, showed that the rejection rate by lending institutions was 19 percent for women entrepreneurs, compared to 8 percent for men -- even though women entrepreneurs reported higher profit margins compared to men (31 percent vs 19 percent on an average), and bankers reported relatively lower non-performing assets to women (Representative Image)

International Women’s Day (March 8) is the day to take stock of where we stand when it comes to closing the gender gap. In India, we still have a long way to go.

An IFC Study, Financial Inclusion for Woman-Owned Micro, Small & Medium Enterprises (MSMEs) in India, showed that the rejection rate by lending institutions was 19 percent for women entrepreneurs, compared to 8 percent for men. This, even though women entrepreneurs reported higher profit margins compared to men (31 percent vs 19 percent on an average), and bankers reported relatively lower non-performing assets to women.

The main difficulty in assessing progress in closing the gender gap in access to finance is the paucity of data. Studies cited above are few and far in between, and we lack gender-disaggregated on the most basic parameters in banking and payments.

The most cited database, the Global Findex, reported a steady rise in the percentage of women owning an account at a bank or any other financial institution from 26 percent in 2011 to 43 percent in 2014 to 77 percent in 2017. We must wait for the next round of the Global Findex, results due this year for the latest estimates.

The impact of the Pradhan Mantri Jan Dhan Yojana in harnessing women showed that the gender gap in account ownership reduced from 20 percentage points in 2014 to 6 percentage points in 2017. However, the 2017 Findex also reported that 54 percent of women had not used their accounts in the previous year; just 43 percent of men had such inactive accounts.

Despite the lack of data, the challenges that women face in accessing formal financial services are well known — they have limited or no credit history, often lack adequate collateral and official documents, and are diffident approaching banks where typically officials are male. Women also have high commitments to family duties, constrained mobility outside the home/neighbourhood, lack decision-making powers within the house, need for husband/father’s concurrence for official documents, etc.

For a comprehensive overhaul of the system, three fundamental changes need to take place.

First, the onus is on the Reserve Bank of India (RBI) to make a start in releasing gender-disaggregated data to cover banking access, usage as well as the Business Correspondent (BC) network. Data can be anonymised appropriately and shared.

The Consultative Group to Assist the Poor (CGAP) has a toolkit on analysing regulatory reports, in which an example has been shared from Mexico where the pension regulator used disaggregated data to create specific products for women. It is also crucial that gender-disaggregated data be granular so that products and services can be aligned to the needs of different regions in India.

Second, gender-sensitisation must be inculcated within the RBI, and all financial service providers for appropriate products, and processes. This, of course, includes training and sensitising staff at all levels.

Recently, Radhika Bahadur Bhushan, senior culture and organisational consultant, Unilever, put together instances where bias worked against working women in practice, despite stated gender-agnostic bank policy. We all know that women customers, especially in some regions of rural India, are more comfortable meeting with women BCs. However, women BCs form less than 10 percent of the total agent network.

The government is working actively through the National Rural Livelihood Mission with the aim of one bank sakhi for one gram panchayat by 2023-24. About 56,000 women have been trained, with intensive hand-holding, but more than 200,000 gram panchayats need to be covered.

Third, women entrepreneurs often are at a disadvantage when assessed by traditional credit scoring models that rely on collateral, documentation, etc. The fintech revolution, alternate credit scoring models, and the account aggregator framework put in place recently in India hold significant promise for breaking the barriers. However, there must be caution to ensure that the algorithms used themselves do not suffer from a gender-bias.

A study by Women’s World Banking revealed two ways in which bias creeps in — algorithms may be constructed with bias or individuals may introduce bias by using ‘incomplete, faulty or prejudicial datasets’.

We should be proud of India’s impressive achievements in financial inclusion over the past few years. The NFHS Round 5 2019-21 validated the rise in usage of banking services amongst women in India — 77.4 percent of rural women reported having a bank or savings account that they themselves use, compared to 48.5 percent in 2015-16 and 10.7 percent in 2005-06.

However, we cannot afford to lose sight of the challenge in closing the gender gap; there is still a lot to be done to bring all Indian women into the fold.

Sumita Kale is with the Indicus Centre for Financial Inclusion. Views are personal, and do not represent the stand of this publication.