The silent shortfall: Why Women’s Savings Don’t Translate into Equal Credit

• by Sonal Jaitly and Ankita Bhat
• Sep 24, 2024
• 3 min

In the era of shrinking bank deposits, female savers are holding up the bankers. Their per capita savings in bank accounts are approximately 3% higher than men, with an average bank deposit of INR 42,503. However, they remain severely underserved in access to credit. This blog explores the factors behind the poor supply of credit to women and advocates for gender-intelligent banking to empower women entrepreneurs and close the credit gap.

The gender gap in credit should worry the market

India has almost eliminated the gender gap in access to bank accounts with the Pradhan Mantri Jan Dhan Yojana (PMJDY). More women have access to bank accounts, and more women are saving in these accounts. Women’s accounts hold 20% of all deposits by amount. In the era of shrinking bank deposits, women savers are holding up the bankers. Per capita, savings by women in bank accounts are approximately 3% higher than men, with an average bank deposit of INR 42,503 by women[1]. Women have been good suppliers of savings to banks; however, they remain severely unserved and underserved when it comes to credit.

According to a 2020 study, women in India receive credit equivalent to only 27 percent of the deposits they contribute to the banking system, while men receive credit equal to 52 percent of their deposits.

IFC estimates an INR 1.37 trillion gap in the demand and supply of credit for women-led enterprises in India. Interestingly, this gender gap in credit persists despite women demonstrating lower credit risks across various loan categories. In 2022, 57% of women borrowers had a prime (credit score of nearly 700 and less risky) and above, compared to 51% of male borrowers, as per TU CIBIL.

If figures from CIBIL are any indication, only 65 million women are credit active in India as compared to 156 million men. This means financial providers serve barely 14% of 453 million credit-eligible women in India.

Loans to women remain limited to small value.

The curious case of system-wide credit allocation to women begins and ends with small ticket-size loans in India. Lending to women has become synonymous with microfinance lending under “weaker sections” and loans to individual women up to 1 lakh under PSL guidelines. The average ticket size of microfinance loans (with 98% female clientele) in 2023 stood at INR 43,200, per the Bharat Microfinance Report. As per RBI, which classifies loans under 2 lakhs as “small borrowal accounts,” women’s share of the total outstanding amount, even under this category, was only 35.5% compared to 58% for men. Women constitute 20% of India’s 63 million MSMEs; however, they constitute only 7% of outstanding credit to the MSMEs sector.

The poor supply of credit to women is due to multiple factors. Primary among them is biases that impact both the supply side (the lenders) and the demand side (the women borrowers). Lenders perceive women borrowers as riskier and costlier to serve, with limited data footprint, credit history, and less formal sector experience.

Many women borrowers (individual as well as women-led collectives) are not credit ready. This is because they lack the documents, guarantors, and collaterals required for accessing productive credit. They also lack the time and confidence to follow through the application process in many cases.

There is also a hidden segment that is credit-ready but credit-averse and decides not to borrow from formal lenders. This self-exclusion is due to various reasons, ranging from bad user experience, time-consuming processes, social norms that discourage debt from formal lenders, lack of support systems, fear of backlash on loan default, and lack of confidence in their ability to repay.

It is time that the sector invests in gender-intelligent banking and does not treat women as customer segments limited to priority sector lending, government schemes, and the microlending portfolio. Without access to adequate credit, women entrepreneurs struggle to tap into higher-value areas of even the sectors they dominate, and lenders find it difficult to graduate them beyond microloans. A vicious cycle that needs to be broken. Credit is an important tool to support women’s growing entrepreneurial aspirations across India. Research shows that closing that gap can add as much as US$6 trillion to global GDP. When offered with the right features, in the right context, and responsibly, it can help women and India realize their economic aspirations.

[1] RBI BSR – 2

The op-ed was also published in The Hindu BusinessLine on 19th September 2024.