Synopsis: Equitable bank ownership has not translated into increased access to credit for women. In today’s blog, we detail the issue of the gendered credit gap and the possible reasons for it.

Promoting Nari Shakti, or women empowerment, has been on the government’s radar for quite some time—and it has yielded results, to an extent. Women-led businesses have experienced a massive 75% growth in the FY 2021-22, albeit still representing only 17% of the total MSME registration count.

Even so, the gender gap in terms of bank account ownership has whittled down to close to zero levels from 22% a decade ago. Unfortunately, what hasn’t happened is the rise in bank accounts hasn’t resulted in improvements in credit access and usage, particularly for women. 

As per 2021’s Global Findex Index report, the proportion of Indians accessing formal credit in the past year is a paltry 13%, 10 bars lower than our other developing world peers. Worse yet, women account for only 10% share against 15% for men.

So, where do we really stand in terms of access to credit for women entrepreneurs, and what are the causes for it? We elaborate on this and much more below.

The Story of Gendered Credit Gap

The Indian lending landscape is plagued by a systemic gender gap in access to credit, so much so that it has snowballed into a $158 billion financing gap for women-led businesses. A 2022 IFC report estimates an $11.4 billion (Rs. 836 billion) credit demand by women-owned very small enterprises (WVSEs) alone, which largely goes unmet.

In fact, the same 2022 report states that almost 90% of women entrepreneurs have never had access to formal credit. Some of the pitfalls of these abysmal credit trends can be seen in the way 72% of women-led businesses were cash-strapped during the COVID-19 lockdown.

Curiously, the NSS 73^rd round’s data shows that while there was an almost half-and-half makeup of men and women entrepreneurs in terms of loan access, there were huge disparities—over 50%, when it came to the loan amount borrowed. 

The fact that women typically borrow small ticket loans can also be gleaned from Mudra Yojana’s data. While 68% of loans were extended to women entrepreneurs under the scheme, 88% of the loans fell under the Shishu category, which is limited to Rs. 50,000.

But why are women facing constraints when accessing financing? Let’s find out.

Inhibitors to Women Entrepreneurs’ Access to Credit

With women accounting for nearly 52% of job losses since the pandemic, it has become even more imminent to give a fillip to women’s entrepreneurship. And yet, as per the Mastercard Index of Women Entrepreneurs 2021, India continues to rank amongst the worst-performing countries in terms of the proportion of women-led businesses. Why is this so?

1. Inherent Biases and Social Conditioning

While the archaic laws have given in to women’s equality on paper, it hasn’t materialized in an increased transfer of property titles to women—something highly prized by the financial lenders. Saddle women with unpaid care work—Indian women spend over 5 hours per day as per NSSO’s 2019 survey, and they are barely left with any time to network to diversify their sales channels. As a result, women entrepreneurs are considered a high-risk proposition, which is only worsened by the gender-biased conditioning from growing up in a patriarchal society.

2. Shortchanged by Formal Lenders

As per a 2020 RAS study, Indian women entrepreneurs receive only a 27% credit equivalent of their bank deposits, which is a huge contrast to 52% for men. Indeed, 79% of women-owned businesses were self-financed per the Sixth Economic Census as banks continue to be unsure of the strength of women-led businesses.

Additionally, in FY 21, credit penetration had only increased to 12% for women. This is despite data insights corroborating that women are disciplined borrowers and maintain super asset quality profiles to men. Even the delinquency rates were a mere 5.2% for retail credit extended to women. 

3. Lack of Gender Sensitivity in Formal Financing 

Generally, conventional banking is male-run and catered to men, thereby staying unversed in dealing with the unique concerns of women entrepreneurs. In fact, not even 10% of the business correspondents in India are women, which is a huge roadblock to women’s access to credit. 

This is because women correspondents can easily understand the operational constraints that women-owned enterprises function under and extend better advisory and awareness services. Although, things are starting to look up, with the government aiming to triple their number over the succeeding three years.

4. Inadequate Business Support and Awareness

Another cause for the alienation of women from formal credit services is the lack of awareness and non-financial support. Burdened with poor financial literacy, low credit scores, scanty accounting skills, and insufficient tax-filing support, women entrepreneurs find it difficult to traverse the lending ecosystem.

5. Incongruous Credit Products 

The biggest barrier faced by women-led businesses is the lack of credit products that suitably cater to their needs. Due to poor credit history and documentation, women are generally charged higher interest rates. 

Besides being inundated with numerous loan procedures and collateral requirements, women also fall victim to several biases, such as higher risk perception, poor compliance, and lack of ambition for business growth.

As a result, Indian women entrepreneurs face high rejection rates of 19% versus only 8% for men. No wonder women-led MSMEs face a monstrous 70.37% credit gap.

But why should we care about plugging this credit gap?

Women Entrepreneurs Lead the Way

Currently, 20.37% of MSMEs are women-led, which employs over 23% of India’s workforce. According to BCG, women-founded companies tend to perform better and can generate 10% higher returns cumulatively over five years. Additionally, such women-led businesses employ 3x more women, thus being more gender inclusive.

And more women employment means more growth. In fact, as per Mckinsey, by employing more women, India can potentially add another $700 billion to the global GDP by 2025. With women-owned MSMEs set to grow by 90% over the next five years, it makes sense to augment their growth by extending sufficient credit and support.

Bottom Line

The availability of timely and adequate financing can make or break a business, especially when led by women. By improving access to credit for women entrepreneurs, financial lenders can give the self-starters a head start and advance the cause of financial inclusion. This will bode well for the future of the Indian economy.

And if you, like several other women entrepreneurs, are tired of standardized loans that require meeting multitudinous requirements and procedures, we got you! At Protium, you can avail of MSME loans that are tailored to your needs and are quickly dispersed within 3 days. Apply for a business loan at Protium today or call us at 8828827800 to know more!