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Financial Inclusion Powered by Data

Simplifying credit access for women entrepreneurs

Account Aggregators can simplify credit linkage for women entrepreneurs by reducing the loan application process from 3-4 days to 10-20 minutes.

Female entrepreneurship is a powerful driver for economic empowerment and sustainable livelihoods for millions of women entrepreneurs in Low and Middle-Income Countries (LMICs). However, financial exclusion is a significant barrier for women entrepreneurs seeking money to start, operate, and expand their firms. In LMICs, women entrepreneurs face a credit gap of $1.7 trillion to fulfill their business needs. Additionally, women in many LMICs face unfair loan terms like higher interest rates and smaller loan sizes. This is often because they lack land or property for traditional collateral required by banks.

Traditional lending institutions like banks perceive women as risky borrowers as it is difficult to assess their creditworthiness. This is because many small women enterprises lack clear financial records and digital footprints. Many enterprises operate in the informal economy, relying on cash transactions that leave little to no financial footprint. This makes it challenging to track income and assess creditworthiness through traditional methods.

To make credit access easier and more reliable for small women-owned businesses, the current lending system requires a different approach. Digital Public Infrastructure (DPI) has emerged as a catalyst for financial inclusion for women enterprises. The Account Aggregator (AA) is one such DPI that can propel financial service providers from a collateral-based lending approach to a cash flow-based lending model. AA is the first step towards bringing open banking in India and empowering millions of customers to digitally access and share their financial data across institutions securely and efficiently. AA will make the financial inclusion process simpler and faster by allowing users to share information between one financial institution where they have an account, and any other regulated financial institution in the AA network. Indian banking lenders have disbursed more than ₹60 billion worth of loans utilizing the AA framework.

Indian woman in traditional garb

According to a recent report by Sattva Knowledge Institute, integration of AA in the lending process can improve access to financial services and lead to simplification of credit linkages for women-owned businesses through:

  1. Simplified loan process: AA reduces the existing documentation and assessment of loan applications from 3-4 days to 10-20 minutes. AA improves the process of credit linkages by replacing existing physical documentation with digitally plugged-in financial data,
  2. Comprehensive credit assessment: AA builds a credit history and proof of creditworthiness by providing a digital record of financial transactions. It gathers financial data from multiple sources, such as banks, mutual funds, insurance companies, and tax authorities to present a holistic view of the user’s financial information, thereby resulting in better underwriting of women enterprises financial health.
  3. Optimized user journey: The AA framework ensures a smoother user journey, which results in lower drop-offs and reduced operating costs. Users simply enter their phone number and approve the access request, and the system fetches the required information automatically. As many as 90% of people who used it went on to finish their loan applications. Loan application conversion rates for manual PDF uploads and Internet banking stood at 56.8% and 49.8% respectively.

Indian woman in red sari at work

To actualize AA-enabled digital financial inclusion, it is critical to bridge the gap between last-mile users and digital lending solutions. The financial inclusion journey needs to be designed to serve women enterprises digitally. Two interventions are necessary to propel Account Aggregators usage among women enterprises:

  1. Drive adoption of digital tools to develop a digital financial trail: Training micro-enterprises to digitize their bookkeeping and other regular functions allows for the formation of a digital trail. Communities that work with women entrepreneurs on the ground should incentivize regular savings and maintain bank-related information. Training women on how to use mobile phones independently to drive financial transactions will increase their comfort with digital tools. Account Aggregator aggregates the digital footprint of women-owned businesses, which can serve as a crucial financial trail for lenders to assess the business’s finances.
  2. Deployment of Assisted-AA for last-mile adoption: AA implementation requires assistance from on-ground human resources. Assisted AA is a phygital model for obtaining AA services with the help of on-ground human assistance. It creates the much-needed trust and comfort in the digital lending journeys for women entrepreneurs. The assistance can be fulfilled by banking correspondents and non-profits operating in close vicinity of small women-owned enterprises.

Assisted Account Aggregators graphic

Assisted AA creates much-needed trust and comfort in the digital lending journey.

Microenterprises are the backbone of local economies in LMICs. The limited access to credit for women entrepreneurs hinders economic growth and development. Studies estimate that closing the gender gap could boost GDP growth in developing economies by up to 8%. The borrowing needs of women enterprises must be met to turn them into sustainable, job-creating livelihood enterprises. To expedite the adoption of AA, it must be tested with different communities to demonstrate its benefits. The success of initial pilots among women enterprises will facilitate greater adoption of AAs across a range of financially underserved communities. Emerging technologies such as AAs will be critical in extending financial services to underbanked women.

To learn more about how Account Aggregators are accelerating financial inclusion of women-owned Self Help Groups(SHGs) in India, read this article.

Useful Links:

  1. Mastercard, Center for Inclusive Growth 2022. Give her credit: Expanding women’s access to finance
  2. CGAP 2021. Addressing Gender Norms to Increase Financial Inclusion
  3. OECD 2018. G20 Policy Guide. Digitisation and informality: Harnessing digital financial inclusion for individuals and MSMEs in the informal economy
  4. Sahamati 2023. What is Account Aggregators
  5. Economic Times 2023. Big potential: Lenders disburse Rs 6,000 crore using Account Aggregator based underwriting
  6. Sahamati 2023. SuperchAArge Lending to Small Enterprises – Finbox, IIFL, Finvu
  7. Finbox 2023. How FinBox Account Aggregator doubled conversions and eliminated fraud for lenders
  8. IMF 2023. Countries That Close Gender Gaps See Substantial Growth Returns
Prerit Shukla is a Knowledge Associate at the Digital Platforms Practice Area of the Sattva Knowledge Institute. He is currently exploring the last-mile impact of digital public goods across sectors such as livelihoods and financial inclusion.
Abhishek Modi is a Senior Practice Manager at the Digital Platforms Practice Area of the Sattva Knowledge Institute. He has more than eight years of experience in the social sector across the diverse domains of education, health, livelihoods, and technology.

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1 Comment

  1. Jeffrey Ashe

    Great article representing the forefront to connect those at the bottom of the economic pyramid to formal financial services. The approach is simple and relevant. Grassroots Finance Action focuses on encouraging those with the strongest and most community minded informal savings circles – called Chit Funds in India – to train more groups. These groups could be linked to the kind of services that Prerit and Abhisheck describe in their article. See grassrootsfinanceaction.org

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