Gender Inclusive Finance – Bridging the gap between Intent and Implementation

Prelude

In Greek mythology ‘Gaia’ is the personification of the Earth, mother of the gods and is attributed feminine qualities of warmth and care as well as wrath and fury. She epitomizes life itself.

Women constitute ~50% of the total global population of around 8 billion and contribute only 37% of the total global GDP of ~$104 trillion. Women?perform 75% of the world's unpaid work?— effectively subsidizing the global economy.?

The global LFPR (Labour Force Participation Rate) for men is 80% and women are shy at ~50%. There are over 2 billion women in the working age group of 20 to 60 years.

As per HOLOGIC global survey, at least 3 in 10 women worldwide — nearly 1 billion women — cannot afford the food and shelter that they or their families need. The percentage of women struggling to afford shelter has increased by more than half in the last decade.

Despite abundant advocacy, intent, thought leadership, research and large pockets of funding backing the cause of gender inclusive financing, the question remains – are we there yet?

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India Opportunity

India is the fastest growing major economy of the world with a nominal GDP of $3.5 trillion. Assuming an annualized growth rate of 6% in the real GDP, 5% as the average annual inflation and 3% currency depreciation, the economy is slated to be $6 trillion by 2030.?The above will catapult the per capita income from current levels of $2,450 to around $4,000, considering a 1% annualized population growth rate.

The rise of Indian women is an essential theme of the Indian growth story.

In India, women comprise 48% of the Indian population of 1.4 billion and contribute a meagre 18% to the GDP. By extrapolating the growth in GDP, the opportunity space for incremental contribution to the economy by 2030 is close to $3 trillion.

LFPR for women in India is ~27% as compared to the overall national LFPR of ~41%. There are ~260 million women in the working age group in India and only ~39 million are employed in the workforce. To get a better understanding, out of the total women in the workforce, 20% are self-employed, 5% are salaried and the remaining undertake casual labour or are unemployed.

Gender inclusive finance across key themes

(i) Consumption

Roughly 60% of the Indian GDP comprises of consumption today and if the same proportion is maintained till 2030, the consumption economy will be $3.6 trillion. Only 8% of the Indian household formed the consuming class. The India Stack with Aadhaar enabled e-KYC has made dissemination of credit to the underbanked and the underserved population living in Tier 2 and 3 cities more straight through. This has resulted in proliferation of consumer focused fintech lenders with nuanced underwriting practices. ~7% of total credit in India comprises of consumer loans bridging a big gap in the accessibility of credit. Additionally, the most important growth driver of the economy – the MSMEs have traditionally struggled to access credit on favourable terms. MSME contribute ~30% of the GDP, but only ~12% has access to formal bank credit.? An IFC study in 2019 estimated that women owned MSMEs in India require approximately INR 1.95 trillion in annual financing. This estimate reflects the total demand for finance of both registered and unregistered enterprises, formal and informal. At Northern Arc, we extend loans to under-served MSME businesses and NBFCs engaged in MSME financing either directly or through our partners.

To contextualise in numeric terms, Northern Arc has impacted over 80mn lives, [majority of the total underlying borrowers of our originator partners comprised women].

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(ii) Education

The percentage of women passing higher education has increased significantly, resulting in higher participation in skilled jobs. Women constitute 48% of the overall enrolment for higher education. India spends less than 3% of GDP on Education and Education Infrastructure. This has necessitated the growth of multiple financial institutions providing financing for school-fee, higher education, up-skilling and edu-infra.

[Over the last 14 years, Northern Arc has partnered with such institutions by providing growth capital.]

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(iii) Healthcare

Healthcare is a $133 billion market in India today and is growing at a CAGR of 10%-11% on account of better access to healthcare facilities as well as increased awareness and spending power. Growth capital to companies for achieving global health standards is a key theme. Insurance penetration rate in India currently stands at ~4% and is disproportionately lower for women, providing a huge opportunity for growth to scale up to global standards.

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(iv) Logistics & Supply Chain

The Indian third-party logistics market is estimated to be $20 billion and is expected to grow at 17%-18% CAGR in the near term. Globally, the organized 3PL market is ~10% of the overall logistics market, whereas it is ~5% in India, providing a significant growth opportunity. The proliferation of e-commerce and growth of the Auto / FMCG / Pharma players will act as a tailwind for this sector. Agriculture accounts for ~18% of GDP. As per estimates, by 2030 Agri and allied sector has the potential to contribute over $800 billion in revenue with an investment of $272 billion. This requires innovation in agri supply chain, logistics, nuanced agri financing and digitization of the ecosystem through Agri-stack, providing immense opportunity in the agri-infrastructure such as micro cold storage, micro-irrigation, silo storage, agri-logistics, etc. Affordable transportation is the key to fuelling Indian women’s economic success. According to a World Bank Report, 45% of women walk to work in India as they do not have access to affordable transport. India’s per capita consumption per day of protein is just 66 grams which is 108 grams in China. Northern Arc’s technology-driven supply chain financing business offers financing solutions to various participants within the enterprises’ supply chain network. Additionally, we work with Partners that provide post-harvest services and financing in the agricultural and allied segments including players who provide commodity warehousing services and warehouse receipt financing as well as players who finance agricultural and allied activities, often working through aggregators such as farmer produce organisations or dairy cooperatives.

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(v) Housing

According to the United Nations, as many as 415 million Indians moved out of poverty in the 15-year period between 2005-2006 and 2019-2021. The secular economic growth has led to large scale formalisation of the economy, which has been pivotal to the growth of the housing market. Even after such stupendous growth, the penetration of Mortgage as a percentage GDP is around 11%, which is lower than most other developing countries as well as developed nations. The housing market gap is majorly alarming in the affordable housing space on account of lack of credible and adequate mortgage financing. The Government of India has taken cognizance of this demand gap and has rolled out policies such as the Pradhan Mantri Awas Yojana, with a special emphasis on women beneficiaries. This scheme encourages home ownership among women, making it mandatory for a family to have at least one-woman member registered as the owner of a new house. Besides this, women borrowers can avail interest rate concessions in borrowing from banks, get partial waivers on stamp duties, and tax benefits. An interesting study by DBS in partnership with CRISIL states that buying a home is top priority for women aged 25-35 years. [The AHF companies provide financing to the under-banked segment of the society, especially to women borrowers for construction of houses, improving access to sanitation, empowering women and facilitating income generating activities for the underprivileged segments of the society. With a gap of over 100 million housing units in the Economic Weaker Section and Low-Income Group segment, we see this sector to continue to grow by leaps and bounds. We at Northern Arc have enabled INR 42,859 million (~$500 million) in the AHF segment in growth debt for our partners directly and through various global and domestic financial institutions.]

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(vi) Financialization

Interestingly, per the National Statistics Office, the urban Indian women has more money in the bank than Indian men and in the booming tech industry, women earn more than men. This has resulted in greater disposable income in the hands of women and greater autonomy in matters of household spends. 31% of the total registered PAN card holders of 702 million are women. The Indian household savings is at 5.1% of GDP. 70% of the household assets in India are stuck in low yielding physical assets as avenue for investments in high yielding financial assets are not widely available. Assuming the household savings remain at 5% of GDP till 2030; there would be an opportunity to reallocate over $200 billion of locked assets annually. New age wealth-tech platforms have become an important conduit for democratisation of such wealth. India has the 4th largest capital market in the world of $4 trillion with 60 million unique demat accounts. Northern Arc offers our alternative retail debt investment platform, enabling us to capture a wider base of retail investors.

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So, with all the research, intent and money backing this seemingly straightforward goal of inclusive finance, why is the idea of lending to women customers still not prolific? Answers perhaps can be had from looking at some of the structural bottlenecks faced in financing this segment:?

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a) Identifying and attracting the women customer and promoting women entrepreneurs

Women borrowers tend to have steeper technology adoption curves, lower financial literacy, and access to reliable information, hence tapping into women customers is relatively challenging. Despite the countrywide digitalisation, Global Findex database in 2021 pointed significant differences in overall mobile phone access for the underserved and women in India, making it difficult to access women customers.

On the other hand, women entrepreneurs would greatly benefit from the establishment of a centralized database akin to Udyam-Sakhi for women owned MSMEs in India, where such women led businesses can avail government subsidies and other benefits such as training programs for fundraising, mentorship, and exposure to investors. Initiatives of similar nature on a national scale can help in solving for social inequalities.

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b) Lack of customized financing solutions for women (yes, unfortunately one size does not fit all)

Products catering to women must be seen as a commercially viable initiatives that will bear fruit in the long term. A research paper by Financial Alliance for Women for instance has published a study that Fintech companies could see a 70% increase in revenues when converting new women borrowers at the same rate as men.

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c) Battling unconscious biases (i.e. preconceived notions of women borrowers being riskier)

As per a Times of India article in February 2023, Indian women entrepreneurs are subject to rejection rates of 19% compared to a mere 8% for men, resulting in a staggering 70.37% credit gap for women led MSMEs.

Despite scores of data proving otherwise, unconscious biases are deep rooted. Data has it that not only are NPA rates notably lower, but women borrowers tend to make stickier and more loyal long-term customers. These biases can be tackled systematically by building awareness through training and development initiatives that need to trickle down from the top in organizations.

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d) Lack of right incentives to financiers to provide, measure and promote inclusive finance

Lenders will be motivated to measure data meaningfully if it is a function of availability of lower cost of funds commensurate to efforts directed toward identifying and funding women. Multilaterals, bilateral and impact investors have supported and promoted gender inclusive end use financing and have entered strategic programs with domestic financiers to support women.?More such initiatives from domestic impact organizations will incentives financiers to prioritize women borrowers who have demonstrated better credit behaviour over decades.

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Conclusion:

Gender inclusive finance is not merely a moral imperative but also a sound business strategy. As per a BCG finding published in The Times of India, women-founded companies perform better, generate 10% higher cumulative returns over five years, and employ 3x more women, thus being more gender inclusive. Leveraging data insights, fostering financial literacy, and bridging the gap between fintech and traditional funding paradigms, India can unlock the full potential of its women entrepreneurs and borrowers. Embracing inclusivity is not only a step towards gender equality but also a catalyst for economic growth. Gender inclusive financing has been integral to Northern Arc, and we would continue to strive towards providing financing and be a bellwether for the inclusive growth in India.

Source: World Bank, McKinsey, ILO, SEBI, RBI, Statistictimes, NSO, Statista, CMIE, Centrum Research, UN, Findex Database, Times Research, Morgan Stanley Research, DBS research