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Portal Exclusive: How microfinance spurs financial inclusion and entrepreneurship among rural women

Posted on Monday, March 18, 2019

Microfinance can spur financial inclusion and entrepreneurship among rural women, writes HP Singh

Despite intense conversations across political, corporate, and social corridors about GDP growth and public welfare, the disparity in rural and urban India has always remained a concern. As per the World Bank estimates in 2018, India witnessed the fastest rise in inequality of all major world regions between 1980 and 2016, and 55% of the country’s income share is in the hands of the wealthiest 10%. The gap is because of the uneven spread of income in rural, semi-urban, and urban areas. It becomes even wider when we factor in gender. According to a 2018 report by the World Economic Forum, India ranks 139th out of 144 countries, with a 66 percent gender gap, in terms of economic participation. One of the reasons for this gap is low financial inclusion for rural women. 

Why financial inclusion is so important

 

 

Financial inclusion is about addressing the constraints that exclude people or businesses from accessing formal financial services such as savings or current account, bank loan, insurance, mutual funds, and stocks etc. The absence of these services limits employment opportunities, financial savings, investment, and long term growth. Imagine being an aspiring entrepreneur finds it hard to secure a bank loan to start  her business because she does not have the necessary identification papers or her village does not have any bank branch. It kills the spirit of entrepreneurship and hampers the socio-economic growth. This is why the World Bank Group believes that financial inclusion is critical towards reducing extreme poverty and accelerate shared prosperity.

 

Where do Indian women stand in terms of financial inclusion?

 

 

 

 

The Global Findex Survey 2017 suggests that only 5% Indian women with a bank account are able to secure a bank loan, as compared to 11% Chinese women. As a result, most of these aspiring women end up relying on informal lending, that come at a much higher interest rate. It also makes their business offerings uncompetitive or their sustenance much more difficult.  Moreover, the opportunity cost of not being able to secure a loan is immense.  

 

How microfinance bridges this gap

 

 

 

 

With dense presence in rural and semi-urban parts of the country, where banks find it hard to set up branches, microfinance institutions provide easy credit access to women, in forms of small loans. Most microfinance institutions follow a very simple lending model. They create joint liability groups in a locality. The members of these groups are assigned small loans, without any collateral or cumbersome documentation. These institutions do due diligence to ensure that the loan amount is used only for income generation purposes like handicraft, agriculture, animal husbandry, trading, and other forms of business.

The easy, doorstep credit delivery by microfinance institutions perfectly meets the requirement of rural women entrepreneurs. The societal impact of microfinance institutions can be understood from the fact that according to Micro Finance Institutions Network (MFIN), as of December 31, 2018, more than 2.94 Crore borrowers (majority of them being women) were active clients with these institutions with the outstanding Gross Lending Portfolio of Rs 60,549 crore.  Studies suggest, compared to men, women are more financially disciplined. Thus, loans disbursed to women go a long way towards further creating job opportunities, poverty alleviation and creation of a progressive society.

 

 

 

 

Way forward

The ‘New India’ requires financial inclusion not only as ‘good to have’ but a ‘must have’. Considering India’s vast demography and geographic diversity, it is no easy task. It is a responsibility that should be collectively shouldered by the banks, micro finance institutions, and the government.

(The author is chairman and managing director, Satin Creditcare Network)

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