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How women-led SMEs are more reliable in repaying loans than small businesses headed by men

women worforce, indian economy, GDP growth, Amitabh Kant, women workforce in India, Niti Aayog CEO 

By Monish Anand

Women-owned SMEs are evolving at a record high in the present market scenario. According to a report by Nasscom, in the year 2016, only 9 per cent of Indian MSME owners were women. Whereas in 2018, MSME Minister Giriraj Singh presented a report that stated 20 per cent of every 1,000 MSMEs is owned by women. It has been interesting to witness that woman even from the remote areas of the nation are actively contributing to these stats, for example, 30 per cent of the total women entrepreneurs belong to Manipur, Mizoram, and Telangana.


Even after a significant increase in the number of women entrepreneurs who are contributing to the economic growth of the nation, they still face many challenges when it comes to seeking formal loans. Formal financial institutions like Banks and NBFCs do not consider women as good credit risk-takers and don’t assist them with equal borrowing opportunities.

Opportunities to Women vs Men Borrowers

The average size of loan lending to women-based enterprises is 31 per cent less than the men-led business. Both on national and international fronts, women are struggling to get equal access to loans from banks. Women loan seekers also report a higher rate of interest on the loan amount which can be a consequence of profitability difference between businesses run by men and women, supply-side discrimination, creditworthiness, and much more.

However, there are evident stats to mitigate the hypothetical nuances of formal institutes in lending loans to women entrepreneurs and indicate how women-owned business are more reliable than men in repaying loans.

Women are better bootstrappers and focus more on saving money before lending as compared to men. They are better credit risks and possess the ability to manage money and budget better than men. Women incline more on crediting loan for revenue-generating purposes rather than discretionary reasons that men generally tend to. Besides, women are psychologically more intended to make an investment decision in collaboration with the companies that address social equality, environmental sustainability, and gender diversity. Hence, they remain self-motivated to build a stronger relationship with such companies by repaying the loan amount timely.

According to CIBIL, 8.6 million women every year get access to their first credit with an excellent average score of 781 as a score. Reports also suggest that the average profit margin for SME loans to women is 15 per cent higher than for loans given to men. Moreover, gender-disaggregated data from banks highlight that women-owned businesses are comparatively 30-50 per cent lower in terms of non-performing loans than men-owned business.

Targetting Women Borrowers

Unlike formal financial institutions, rapidly emerging fintech companies in the market are recognizing the creditworthiness of women and are intending to lend more to them. Micro-financers have been the prime motivation for lenders for lending more loans to women. Stepping over the cultural barriers, Muhammad Yunus – the father of micro-financing evolved the idea of financing women entrepreneurs for their upliftment.

Carrying the legacy forward, fintech companies target women to lend formal loans to meet their monetary needs. Most such firms lend loan to women at lower interest rates as compared to men because women hold better data points according to various reports and are likely to be lesser defaulters. 

Initiatives Required

Fintech companies often accumulate alternate data of their potential clients and they know how to use and evaluate the collected data in the best way possible. They conduct an in-depth study on the data points to build a mature algorithm defining the personal and professional background of applicants, bank details, educational details, and obligations to determine a precise and essential credit score. Moreover, fintech enterprises actively stay connected with the loan seekers to remind them about their upcoming loan EMI and by briefing them about the benefits of good credit score and disadvantages of being defaulters that motivates them to repay their loans timely.

Women are becoming more independent in making financial decisions and are rapidly participating in the small business sector as well. According to reports, today, India has over 3 million women-owned enterprises but they still struggle terribly to get access to formal loans. Though fintech companies and micro-financers are trying to bridge this gap, there’s still more to be done in terms of changing market perception. From organising finance awareness camps for women-led businesses to designing women-friendly financial products, there are plenty of initiatives that lenders can take up. It’s heartening to know that women constitute 40 per cent of the customer base for fintech firms and this share is expected to grow in the near future.

(Monish Anand is Founder and CEO at Shubh Loans. Views expressed are the author's own.)