Technology: An Important Enabler for Fostering Financial Inclusion for Women MSMEs

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By Alok Mittal

Technology for 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 make up 20% of the MSME sector. These are mainly sole proprietorships, providing direct employment to around 22 to 27 million people. Bain & 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 pressing problem, which according to a study called “What Women MSMEs Want, is raising capital. According to data from the 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 formal 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, women entrepreneurs end up being short changed. This is the result of certain socio-cultural barriers that they exclusively face:

I. Subconscious bias in formal systems

There is a negative bias that perceives female-owned businesses as riskier and female entrepreneurs have a higher loan application rejection rate. This is even when research confirms that women are more disciplined than male borrowers and have better credit profiles. Indifi also found in its “Understanding what female-led MSMEs want” survey that female businesses command a higher ticket size, which is a sign of a healthy profile.

ii. Cultural disparity

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.

iii. Financial Literacy

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


How technology can bridge the gap

Technology has undeniably become a key driver of sustainable economic development in businesses and households. This is a direct testament to the explosive rise in the number of housewives becoming entrepreneurs, which has been spurred by growing internet penetration and the digitalization of supply chain management.

The existence and development of online aggregation platforms like Amazon, Flipkart, Swiggy, Meesho, Myntra etc. have also been a boon for these entrepreneurs. They can manage most of their business activities from the comfort of their homes. It is also a factor that gives them confidence to run their business due to the increased visibility and reach of these platforms in the market, as well as connections with 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. This digital lending ecosystem enables greater 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. Additionally, the digital aspect of it proves to be most beneficial for women, as they can avail of credit without having to physically step out of their homes and see the process consume a significant amount of their time. (for which they are already in a hurry). Seizing this opportunity, lenders have now launched integrated services where credit journeys can begin 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 India, women 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 be the playground 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 access to capital.

Alok Mittal is CEO and co-founder of Indifi Technologies. The opinions expressed are those of the author.


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