Adding a Gender Lens to Financial Reforms in India

Globally, women have fewer economic opportunities — Less than half of all eligible women participate in the labour force, compared to 75 per cent of men.

The working paper by Vidhi Centre for Legal Policy, titled ‘The Law Needs to Account for Her,’ analyses problems about the financial inclusion of women and offers policy solutions to decrease the gendered gap in the financial world by empowering women-led businesses.

Challenges to Women in India

Socio-cultural Issues:  Lack of identity documents, lack of collateral, lower ownership of mobile phones and access to the internet, lower financial literacy levels, lower number of registered businesses, time poverty, and other social norms such as lower control over financial decisions in the household and businesses. 

There are multiple legal barriers as well (such as inheritance laws) that prevent women from accessing finance on a level playing field. 

Why should Women’s Business Growth have Economic Value?

• There are nearly 30 Lakh women-owned MSMEs in India with full or partial ownership, and collectively, they contribute 3.09% of industrial output and employ 80 Lakh people.
•  Women-owned enterprises in India have certain distinct characteristics: almost 98% of them fall in the micro category of MSMEs and 90% of their financial demands are met through informal finance.
• Several reports suggest that women present a massive credit opportunity. For instance, the unmet credit gap for women-owned enterprises is 70.37% which translates to a financing gap of INR 1.37 Lakh Crore and presents a huge market opportunity for formal financial institutions. 
• Global Point from Worldbank: Since the onset of the pandemic, the World Bank has been conducting surveys with about 45,000 firms in 49 mostly low- and middle-income countries.  The survey found that women-led small and micro businesses were much more likely to increase the use of digital platforms compared to those led by men. On average, women-led businesses were 2 percentage points less likely to report accessing public support compared to companies led by men. 

Defining Women’s Business

Defining women-owned enterprises, like defining any other target group, is foundational to understanding market capabilities, targeting technical and financial assistance, and determining the eligibility of businesses for preferential procurement policies.

However, the current definition used in India is hinged only on the ownership aspect, which may not be suitable as the sole criterion to determine whether an enterprise is owned by women or not. While most of the definitions indicate an ownership threshold of 51% or more, there is growing literature to indicate that the 51% threshold operating as the gold standard may be misplaced for many reasons: it may be too restrictive as it does not account for family-owned businesses and partnerships.

The working paper recommends that the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) be amended to add a criterion classifying MSMEs based on whether they are owned/led by women. 

A new subsection may be added to Section 7 enabling the Central Government to define and classify MSMEs as women’s enterprises.

The use cases of such a definition range from earmarking of credit to women-led enterprises by banks; better targeting of women-centric schemes, initiatives and products; a collection of gender-disaggregated data; and a consolidated digital platform for such enterprises – all of which contribute towards creating an enabling ecosystem for women entrepreneurs. 

Engaging Female Business Correspondents

The working paper identifies the need for increasing the engagement of female business correspondents (BCs) in an otherwise male-dominated profession (female BCs comprise only 10 per cent of the BC system). BCs play a pivotal role in furthering the financial inclusion agenda in the country from the time of their conceptualization by RBI in the year 20. 

The paper suggests that the Reserve Bank of India (RBI) issued a circular laying down broad principles for support measures to be extended to female business correspondents by banks and Business Correspondent Network Managers (BCNM). The measures most suitable to female business correspondents may be in the nature of technical equipment support, mobility support and other financial measures such as insurance, in addition to efforts to transform female business correspondents from mere cash-in cash-out (CICO) agents to relationship managers. 

Pivoting Digital Banks towards Financial Inclusion of Women

Vidhi’s report suggests digital banks (DBs), which are internet-only banks, to have a financial inclusion and gender lens. Considering that these would be a new class of banks and the framework for them is yet to be put in place by RBI, it is suggested that the proposed framework from the very beginning pivots them to better serve the goals of financial inclusion. This may be done by clarifying the objective and target segments for DBs to specifically emphasize women enterprises and retail women customers. 

Designing Financial Products for Women

The survey was conducted on 44 financial institutions ranging from 5 public sector banks to fintech companies.

• Very few credit products for women enterprises are offered by banks. Only two PSBs and one PvSB offered customised credit products to women enterprises, and no such products were provided by SFBs
• Limited to negligible concessions are offered, in the form of waiver of processing fees and documentation charges, for credit products offered to women enterprises.
• Fintechs catering specifically to women provide only investment advisory services and a platform to women to learn financial concepts such as money management, but no specific savings or credit products are offered.

Examples of Innovations in Asia

Digital solutions that enable women to become entrepreneurs: Several fintech and digital service providers are enabling women to become entrepreneurs. They equip women with technologies like point-of-sale devices and quick response codes to allow them to conveniently collect payments from clients. In the Philippines, Grameen Foundation has developed a Community Agent Network which is funded by the JPMorgan Chase Foundation. The mostly female agent network allows women agents to connect individuals with banks, government agencies, utility companies, and other businesses. Since 2016, has worked with 1,900 agents of which 75% are women who own or operate small convenience stores. Agents have facilitated more than 4.3 million transactions valued at $24.9 million since 2016.

Bundling financial solutions (to include micro-insurance, savings, remittances, as well as loan products). Financial service providers, MNOs, and fintech companies are designing products that address the lifecycle financial needs of women. These products holistically address the financial needs and constraints of women by providing them integrated access to savings, insurance as well as short- and long-term credit.