An important catalyst to foster financial inclusion for women MSMEs

Enabling the growth of MSMEs through innovation, technology and policy has been a priority for the economy. But this growth story has overlooked a key demographic – women entrepreneurs who represent 20% of the MSME sector. These are mainly one-man businesses, which provide direct employment for a 22 to 27 million people. Bath & Company projects that female entrepreneurs can create 150-170 million jobs for the working-age population by 2030. Instinctively, empowering these MSMEs will lead to positive socio-economic and personal outcomes.

For that, we need to address its most glaring pain point, which according to a study titled “What women MSMEs want”, raises capital. According to data from International Finance Corporation (IFC)the credit gap for women-owned MSMEs currently stands at $158 billion (about Rs 12 lakh crore).

The gender divide in access to cormal finance

An overwhelming majority of women entrepreneurs, 90% to be exact, use informal sources of finance such as loans from family and friends, cash vouchers, informal savings clubs, etc. In most scenarios, compared to their male counterparts, female entrepreneurs end up being disadvantaged. This is the result of certain socio-cultural barriers that they exclusively face:

  • Subconscious bias in formal systems

There is a negative bias that perceives women-owned businesses are riskier and women entrepreneurs have a higher loan application rejection rate. It’s even when to research confirms that women are more disciplined borrowers than men and have a better credit profile.

There is great inequality in the inheritance that women receive and simply the limited access to assets and property so that they can take out a loan against collateral. There are also cultural constraints such as the unequal distribution of unpaid household chores, lack of security and limited mobility that prevent a woman from approaching a physical lender to access credit.

Women MSMEs tend to be unaware of the financing options available, the pros and cons, as well as the costs of the various options, the benefits of borrowing, etc. This lack of knowledge and awareness, especially in small towns, generates reluctance to access funding through formal channels.

How Technology is Bridging the Gap

Technology has undeniably become a key driver of sustainable economic development in businesses and households. This speaks directly to the fact that there is an explosive increase in the number of homebuilders-turned-entrepreneurs, which has been spurred by growing internet penetration and digitalization of supply chain management.

The existence and development of online aggregation platforms has also been a boon for these entrepreneurs. They can manage the majority of their business operations from the comfort of their homes. It is also a factor that gives them the confidence to run their business due to the increased visibility and reach of these platforms in the market, as well as connections from digital providers and lenders. Digital lenders have deep integration into these platforms with a complete digital journey from loan initiation to disbursement, enabling easy access to credit for women entrepreneurs to overcome cultural disparity and their key barriers when it comes to is to begin their credit journey.

Another benefit directly related to access to credit is the information and help they get from these platforms; they can explore and receive information on what’s new in the market, available lenders on platforms, financing options, terms, etc., bridging the financial literacy gap. The digital lenders themselves provide easy and quick access to information in addition to what is available on the platforms through FAQs, self-explanatory videos, chatbots, WhatsApp support, and more. enabling a smooth flow of information through cost-effective channels. dissemination of credit and its information.

Confident in the understanding and usefulness of financial products by women entrepreneurs, digital lenders offer gender-neutral risk assessment through AI-based algorithms and machine learning, avoiding human biases. Second, with cash flow-based lending, the lack of conventional qualifications (which female entrepreneurs do not have) for a loan is no longer an issue. Moreover, the digital This aspect of it proves to be most beneficial for women, as they can avail of credit without having to physically leave their homes and see the process consume a significant amount of their time (for which they are already pressed). Taking advantage of this opportunity, lenders have now launched integrated services in which credit trips can start through platforms like WhatsApp. The process is just to answer a few questions via WhatsApp and send documents to avail the loans.

The path to follow

Addressing the digital divide must be a top priority to realize this potential at scale. In Indiawomen are 15% less likely to own a mobile phone and 33% less likely to use mobile internet.

For technological capabilities to drive full financial inclusion, much remains to be done. Currently, we see that technology can address three of the key touchpoints for growth. It has the potential to level the playing field for female entrepreneurs. Digital loans have been proven to enable scaling for women entrepreneurs running successful businesses. Because of this, it can widen the funnel for other women to engage in entrepreneurship and credit, without worrying about their access to capital.



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Disclaimer

The opinions expressed above are those of the author.



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