By Trisha Ghoshal and Supriya Sharma
Technology is catching up to the overall MSME credit gap in India. DPIs are enabling formalisation and enterprise lendability through digitisation. The expected integration of UDYAM, TReDS, ONDC, OCEN and the AA framework will mean a real-time ecosystem of shareable and buildable enterprise data; and a multitude of data-led underwriting and digital lending opportunities in the MSME space.
Yet, despite big movements, where are the women? Last we checked, they are $11.4 billion behind men in credit accessed on top of $158 billion in credit unmet.
Women own every fifth of the 63 million micro and small businesses in India but a majority of them are nano in size. In addition to a range of factors creating this ceiling, it is tougher for Indian women to access credit that can unlock their business growth. Some studies confirm that women micro entrepreneurs face 2x rate of rejection compared to their male counterparts.
The fintechs building enterprise and small business credit products often build ‘gender neutral’ products. More often than not, these products are based on initial research and testing with male customers. Thus, while not intentional, the product concept, structure and design do not represent women customers.
Building for women takes nuance and intelligence
Men and women inhabit different financial and digital ecosystems. For instance, while it is easier for men to attract supply chain finance within trade networks, women are more likely to discover credit opportunities through SHGs, women-led cooperatives or a social group. The same applies to digital adoption. Men own personal smartphones and have greater comfort and confidence in digital payment environments. Women, conversely, rarely own personal smartphones (especially in last-mile segments). Their unique mental accounting logics do not resonate in common digital environments.
Going digital and pinkification of UI is not going to automatically fix the gender-gap in MSME credit! Here are some ideas on what fintechs can do to intentionally enable credit access to women micro entrepreneurs:
Build mechanics to graduate women micro entrepreneurs across the lending pyramid
Women-led nano- and micro enterprises are largely either self-financed, informal credit financed or derive working capital from MFI group loans. The latter is useful to bridge routine liquidity gaps. However, research demonstrates that micro loans make no contribution to business growth or scaling. Fintechs can develop mechanisms to build data portfolios of women entrepreneurs in current JLG/SHG pools, and generate granular data profiles to graduate them to higher-ticket individual business and working capital loans.
Invest and create the next generation of growth-oriented women micro entrepreneurs
Women micro entrepreneurs lack access to entrepreneurial mentorship and education. Fintechs can explore alternative ways to build entrepreneurial discipline and acumen in the target segment. Develop and distribute freemium ‘entrepreneur’s toolbox’ modules using phygital channels. Design modules and interaction points intentionally for women. These modules must encapsulate native financial concepts, intrinsic goals and aspirations, lived imagery and built-in learning curves and reward systems. For instance, partner with an MFI-NBFC and co-create a book-keeping app for women running businesses in their customer pool.
Remember this is a long game. You are building entrepreneurial orientation and capability at the tail-end of the market so women-led nano/micro businesses can eventually reach enterprise-size and formalization thresholds that stably unlock access to institutional credit.
Build strategic partnerships
Study and profile the target segment. What value chains are they part of? Build embedded finance up and down value chains with high degrees of women’s participation. Looking into the silver jewellery crafts value chain in Orissa? Partner with e-commerce platforms and white-label retailers. Link home-based workers to e-marketplaces. Partner with an NBFC or Bank to embed transaction-data linked artisanal credit on the app.
Again, think intentionally and contextually. Access to technology is a tremendous pain point for female micro entrepreneurs. Access to technology needs exposure, bold decision-making and lump sum capital investment that do not work in favour of the typical socio-economic profile of female micro entrepreneurs. Address this. Build targeted technology diffusion models with embedded capital finance. Partner with rural tech startups and build tech platforms to link end customers to lenders and tech providers.
Finally, find ways to experiment
All said, female-led nano and micro businesses remain a high-risk lending use case, not because there is a lack of talent or enterprise, but because it will take the industry more time to accurately profile the segment. Until that happens, fintech enablers and digital lenders can find means to lend to the segment while also derisking their own books to a reasonable extent. Direct lending fintechs can consider blended finance partnerships to pilot experiments. Not only will this address the current gender gap in MSME credit, but also foster a positive lending culture and borrower discipline; and it may weed out bad apples!
Way ahead
Female micro entrepreneurs in India lack an ecosystem of resources to build and navigate their entrepreneurial journey. Enterprise credit is the immediate way forward. This is a big opportunity for fintechs to innovate and be market-makers in a segment where incumbent banks and NBFCs do not have the tools to benchmark and service at market rates.
Technologies are falling in place, It’s time to establish intention.
Trisha Ghoshal is AVP – Insights – IIMA Ventures, and Supriya Sharma is Partner – Insights – IIMA Ventures. Views expressed are the authors’ own.