Women entrepreneurs face disadvantage in securing formal loans compared to men: GIM research

New Delhi: Women entrepreneurs face disadvantage in securing formal loans compared to men indicating a gender gap in access to credit, a research by Goa Institute of Management (GIM) has found and recommended that digital technology can help narrow down this gap.

The study conducted has been published in the prestigious journal "Applied Economics".

The researchers investigated the data on women-owned enterprises in the unorganised sector. They studied the borrowing by these enterprises from banks, government institutions and similar formal sources of finance.

According to officials, the data sample they studied comprised more than 4 lakh unorganised sector firms, and drawn from the 2022-23 round of National Sample Survey Office (NSSO) Annual Survey of Unincorporated Sector Enterprises (ASUSE).

The researchers found clear evidence of a gender gap in access to credit. The research team also found that when women-owned enterprises in the unorganised sector use digital technology such as internet banking and other financial services, it helps reduce the gender gap in access to credit.

"Financial institutions play a very important role in boosting entrepreneurship and job-creation in India's informal sector. Any disparity along the lines of caste, gender etc in the loans they grant is likely to severely limit the good they can achieve with the credit they grant. As for technology solutions to such problems, while digital financial technology adoption is expected to improve financial inclusion, the pace of product innovation has recently been far higher than that of knowledge diffusion.

"At the bottom of the pyramid, we need to invest just as much time, effort and money in driving financial literacy, as we do in creating new financial technology," said Ashay Kadam, Professor, Banking, Insurance and Financial Services, GIM.

While various research in the past have explored challenges faced by women-owned enterprises in accessing formal credit, this research goes further and explores the approaches that could be taken to overcome these challenges.

"Access to formal finance is essential for the development and growth of women entrepreneurship in India. While, women firm owners face disadvantages in securing formal loans compared to men firm owners, the use of digital technology provides a ray of hope in bridging this gender gap," said Swarna Parameswaran, Assistant Professor, Economics, General Management and Public Policy, GIM.

"Particularly, the use of digital banking and financial services mechanisms enables higher formal finance access among women entrepreneurs by reducing information asymmetry and the need to visit financial institutions multiple times. Steps towards increasing awareness about the benefits of digital financial technologies and promoting greater use of these services will mitigate the financial constraints faced by women entrepreneurs," Parameswaran added.

The researchers have recommended that banking supervision policies and practices could be re-examined with the specific goal of reducing gender disparity in access to formal credit.

Secondly, special schemes could be designed, and government funds allocated, to promote the use of digital technology for women-owned enterprises in the unorganised sector.