Women are known to be intuitive savers, prudent investors, and responsible re-payers. They tend to be loyal customers and are unlikely to switch financial service providers (FSPs). This makes them ideal consumers for products such as fixed deposits, insurance, pension, gold loans, and educational loans. We witnessed this in our work with the Pradhan Mantri Jan Dhan Yojana (PMJDY) account holders, where the financial revenue generated by women account holders is 12 percent higher in comparison to men. Thus, the case for gender-intentional lending is more compelling than ever.

Compared to enterprises led by men, women-led MSMEs face greater barriers in terms of limitations on time, mobility, and resources, along with significant cultural and social constraints. Fewer opportunities for networking and mentorship are available to women. They face disproportionate challenges due to caregiving responsibilities, greater vulnerability to financial shocks, and restricted access to information and technical skills. Women are also less likely to have access to smartphones or digital financial services. They may find it daunting to apply for loans, make payments, and purchase insurance, and are usually not discovered by lenders.

Except for a handful of companies that have focused on creating solutions for women, the finance industry has overlooked the needs, preferences, and obstacles unique to women.

Where is the credit?

Women entrepreneurs largely point to the lack of access to credit as a challenge. The International Finance Corporation estimates that, globally, women-led businesses face a credit gap of USD 1.5 trillion. Due to this lack of access to credit, their businesses are often informal, home-based, small in scale, and concentrated in the sectors traditionally assigned to women. Women tend to run micro-businesses—too big for microfinance institutions (that have a loan requirement of greater than INR 50,000) and too small for banks (that have a loan requirement of less than INR 10 lakh). Consequently, women-led small businesses form just 10 percent of the gross loan portfolio of most financial service providers.

Typically, a loan application goes through multiple steps. At every stage, there is potential for biases to seep in when lending to women—they are twice as likely to be rejected for a loan than men. Women continue to face the consequences of historical beliefs and cultural practices and have fewer assets in their name, which means they don’t have collateral security. This causes women-owned businesses to be denied bank credit more often, due to which they do not feel encouraged to apply for bank credit, are less reliant on it, and receive inferior terms on granted loans. Another reason for loan rejection is that women are more likely to be ‘thin file’ customers, that is, they lack a formal credit score, and credit history. Such credit product requirements may simply not work for women.

How lending can be made gender-intentional

Actively countering prejudices is critical to ensuring fair and gender-intentional lending processes. Biases creep in during the data collection process itself, as online lending instruments collect different types of information from the user’s handheld device such as internet usage per day. This may not be an appropriate criterion to gauge eligibility for financial products. Keeping a check on the unconscious biases of individuals developing such apps and investigating every step of the process can pave the way for fairer lending practices. 

Technologies such as artificial intelligence and machine learning can be great enablers in providing access to credit.

Women’s World Banking has devised a set of tools to detect gender bias in lending, taking six factors into account—credit score, approval rate, loan amount, interest rate, collateral size, and characteristics of rejected candidates. The tools enable financial institutions to self-evaluate whether they are marketing to/targeting women customers, actively acquiring more women, and building and retaining a gender-diverse portfolio.

Technologies such as artificial intelligence and machine learning can be great enablers in providing access to credit for women entrepreneurs. They can be used to generate alternative data to create a proxy score in order to gauge creditworthiness and bring more women into the credit funnel. The data could include an assessment of assets owned such as LPG gas connections, indoor sanitation facilities, and type of house. Behavioural data from transactions such as the proportion of informal loans to formal or concurrent loans can also help build a profile that is not solely based on the customer’s collateral and credit history.

Leveraging digital payments

Although more than 48 percent of women prefer cash payments to digital means, UPI adoption has seen varying rates of growth—ranging from 5 to 20 percent—signifying women’s openness to digital payments. Greater access to the internet, along with alternate payment methods becoming more prevalent in the merchant points around them, has further increased women’s awareness about digital finance. Digital payments can only work for women when banks, FSPs, and FinTech firms facilitate their onboarding through physical touch points. It is important to actively build women’s trust in digital payments by addressing phishing attacks, setting withdrawal limits, investing in data protection, and more. Further, the introduction of apps that offer women a sense of control and privacy can encourage them to adopt digital financial services. The decision to launch UPI 123PAY, which works on basic phones, is a great example of designing payment solutions for women who do not own smartphones. 

When apps effectively target women and are designed keeping their unique needs and capabilities at the centre, service providers accrue benefits by acquiring a new customer base—people from low-income groups, and women, who offer a significant retention and lifetime value.

As more women shift to using debit and credit cards, banking applications or UPI for payments and remittances, become cash-light and do business transactions digitally, they will develop credit histories that will then encourage banks to lend to this segment.

Including women in digital public infrastructure

Access to credit and digital payments is one side of the coin. Digital public infrastructure (DPI) can serve as the tipping point in women’s financial inclusion journey by virtue of its scale and it being a convergence platform for public goods and services. When DPI is built with gender intentionality, women can be its largest beneficiaries, while also unlocking a new business opportunity. India has already addressed the three foundations of building a DPI—a digital identity system through Aadhaar, a real-time fast payment system through UPI, and a consent-based data aggregatory through data empowerment protection architecture (DEPA)—via IndiaStack.

It is vital that women are equipped with digital and financial capabilities.

With respect to entrepreneurs, consider India’s digital public infrastructure—the Open Network for Digital Commerce (ONDC)—which is meant to be a great equaliser that will bring together sellers, buyers, and creditors, and facilitate business between hinterland entrepreneurs and city-based retail businesses. Imagine a woman micro-entrepreneur from rural Maharashtra who creates hand-painted Warli sarees. If she were to be successfully onboarded on to this DPI, she would have direct access not just to loans and payment solutions, but also to markets, retailers, and brands that would like to invest in her product. As more women have Jan Dhan accounts, build financial histories and business identities, and are registered to pay taxes on their businesses, they will be able to engage with buyers and sellers on ONDC, use UPI for payment, and avail credit through the Open Credit Enablement Network (which helps connects lenders and marketplaces). 

For women to engage with digital financial services, it is vital that they are equipped with digital and financial capabilities. Beyond literacy, this requires them to have the knowledge, attitude, and skills that increase their capacity to actively use digital and financial services on their terms. This will not be possible unless FSPs invest in their female customers.

India has already started its journey towards financial inclusion for women by recognising the importance of digital access as a fundamental right and in establishing a thriving DPI ecosystem. Gender intentionality needs to be at the heart of the efforts to bridge the digital divide and in ensuring that every citizen has equal opportunities to participate in the digital realm.

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Know more

• Read more about how banks can enable women’s financial inclusion.
• Learn more about how to ensure women entrepreneurs’ access to finance.
• Learn how women’s access to credit can be improved.

This is primarily because micro-enterprises are unable to access credit to grow their operations due to traditional loan processes, which rely on MSMEs demonstrating their creditworthiness through collaterals such as evidence of digital financial transactions and property. Their limited access to affordable formal credit results in poor working capital reserves, impeding their productivity and thwarting their expansion into mid-sized enterprises. This concerning phenomenon in turn hampers the overall economic growth of the country.

Cash flow–based lending could solve this critical credit gap

The cash flow–based lending approach could prove to be a viable alternative for MSMEs, especially micro-enterprises. Unlike traditional lending methods, this approach focuses on a borrower’s projected future and past cash flow data to determine their creditworthiness. This form of lending forms the core of India’s Open Credit Enablement Network (OCEN), an open protocol infrastructure that has the potential to democratise and transform India’s digital lending landscape and address the persistent challenges of the MSME credit gap, estimated to be at a staggering USD 800 billion.

An emerging digital public good being developed by Indian software industry think tank iSPIRT, OCEN streamlines the process of lending and borrowing by connecting a wide range of stakeholders in the lending ecosystem. Using the cash flow–based lending approach, it enables borrowers to share their data digitally, eliminating the need for traditional collateral requirements.

This makes it viable for previously unbanked and underbanked micro-enterprises to access credit through OCEN.

The implementation of OCEN depends on a diverse group of stakeholders, wherein each of them plays a unique role within the intricate lending infrastructure, bringing distinct expertise and performing specific functions. This includes:

1. Loan service providers (LSPs): Consumer-facing digital platforms—web- or application-based—that provide low-cost distribution, bringing knowledge of local and customer contexts to the network.
2. Technology service providers: FinTech companies that support onboarding to the OCEN protocol, roll out tailored credit programmes for MSMEs, and aid in technical implementation and adoption.
3. Account aggregators: Data intermediaries that act as consent brokers, allowing lenders quick access and plugging in of critical digital infrastructure for lending.
4. Underwriting modelers: Entities that assess vulnerability in terms of non-payment and late payment, supporting the decoding of raw data signals captured through digital trails.
5. Lenders: Banks, NBFCs, and small finance banks that provide capital and access to core banking networks, utilising the LSP infrastructure to increase last-mile connectivity and provide tailored credit solutions.
6. Borrowers: MSMEs or individual consumers who leverage credit options available within the LSPs’ platforms through secure digital processes, getting connected to multiple lenders through one platform.

Why should lenders opt for OCEN?

The adoption of OCEN could unlock substantial economic potential for the country. By 2023, MSME digital lending has the potential to increase by 10–15 times to reach INR 6–7 lakh crore (USD 80–100 billion) in annual disbursements. While OCEN makes a strong case for borrowers to be a part of the network, lenders too have a major incentive to join.

1. By capturing data digitally and doing away with the manual filling of forms, OCEN helps simplify the lending process. This enables lenders to offer customised loan products based on specific needs such as time, repayment schedule, and interest rates, benefitting both lenders and borrowers.
2. OCEN allows lenders to monitor the finances of the borrower in real time, helping them identify early warning signs for potential defaults. It automates key workflows such as loan disbursement and repayment tracking. Additionally, OCEN optimises the risk assessment process by enabling borrowers to share their data from various sources through consent-driven mechanisms without any in-person visits. This allows lenders to access and evaluate comprehensive, up-to-date credit histories, enhancing the efficiency of their evaluations. This makes it economically viable for formal financial institutions to underwrite low-cost, timely, and small-sized loans to the historically unbanked and underbanked, including micro-enterprises.
3. OCEN unlocks a large potential customer base of 190 million micro and small enterprise that lenders otherwise wouldn’t have access to. The operational efficiency of the process, when paired with the prospect of a diversified loan portfolio that OCEN will offer, makes small-ticket lending possible. This will enable lenders to expand their market reach and loan volumes.
4. By integrating with already-scaling account aggregators, OCEN can enable improved credit risk assessment, especially crucial for lending in the informal sector that constitutes approximately 40 percent of MSMEs.

However, while OCEN is a step in the right direction, it faces several challenges that can potentially restrict its popularity and viability.

1. Digital readiness and infrastructure

The effectiveness of OCEN depends on the degree of digital expertise possessed by micro-enterprises. For both lenders and borrowers to actively participate and avail the benefits of this credit system, it is imperative that MSMEs have digitally captured expenditures, income, and investments, also known as digital financial trails. These are imperative to determine a borrower’s eligibility for credit. An absence of these would render obsolete any incentive for lenders to participate in the model.

However, more than 90 percent of India’s population lacks basic digital literacy skills. In the MSME sector, the spectrum varies drastically, with some being completely unfamiliar with digital financial products while others use digital banking and transaction mediums such as UPI regularly. For instance, while approximately 33 percent of micro- and small enterprises are increasingly conducting their business on social media platforms, 60 percent of MSMEs are only beginning to move from cash to digital payments, indicating early stages of adoption.

In addition to this, even when digital literacy is present infrastructural shortcomings such as unstable electricity, sparse mobile tower coverage, and intermittent broadband connectivity limit the usability and reliability of digital tools, particularly in rural India.

An in-depth evaluation of the readiness of India’s micro-enterprises to adopt this new infrastructure is essential to ensure that the benefits of OCEN are within their grasp and align with the country’s financial inclusion agenda.

2. Cash-based economy

Even though OCEN makes it viable for financial institutions to underwrite low-cost loans for underbanked or unbanked MSMEs, the large number (an estimated 190 million people are unbanked or without formal bank accounts) is still an obstacle. In addition to this, approximately 72 percent of transactions in India are cash-based. India’s cash-based economy, along with a significant number of informal MSMEs, poses a considerable challenge to OCEN adoption. Without formal banking channels, MSMEs lack bank records and digital financial traits required by OCEN. The absence of formal business registration and records further limits accessible and reliable data for OCEN. This prevents MSMEs from establishing digital creditworthiness, which is crucial for OCEN adoption.

3. Data privacy

Even when digital readiness and formal banking channels are present, data privacy arises as an obstacle to the widespread application of OCEN. The OCEN framework relies on sharing sensitive financial information and personal data, leading to concerns about potential data breaches and misuses such as created and marketed tailored products based on financial information and size of the company by various agencies. As the volume of loan data increases, cybersecurity will become an increasingly big challenge, especially in the absence of any law on data protection in India. Including stringent measures such as encryption, secure storage, and strict adherence to privacy regulations can help combat this. Embedding privacy in design, and respecting user privacy, is equally essential. 

4. Apprehension among MSMEs

Transitioning to a digital platform is plagued with apprehensions and scepticism for the enterprises. Concerns around control, taxation, and transparency often prevent MSMEs from shifting to digital transactions. Since OCEN also calls for high transparency, there is concern among MSMEs about its potential consequence. Compilation of defaulter lists—those who are unable to pay back the loan in a timely manner—by OCEN also adds to this reluctance, and could lead to the exclusion of these individuals from the lending process. To address this, a large part of onboarding must focus on creating awareness about the network, and helping stakeholders understand its benefits. This can be done by leveraging networks of first movers and risk takers, and by incentivising MSMEs looking for lending through formal channels. Policy and regulations must also be relaxed to quell the anxieties of the stakeholders being onboarded.

Bridging the gap of the ‘missing middle’ in India’s MSME sector is both a significant challenge and an enormous opportunity that necessitates systemic transformation in lending approaches. OCEN emerges as a promising solution by leveraging digital data, reducing costs, and enabling better loan offerings. However, success hinges on MSMEs’ readiness for digital transformation and the cooperative and trusting relationship between the OCEN ecosystem and MSMEs. Achieving this collaboration can unlock a new era of financial inclusion, unleashing untapped economic potential and fuelling nationwide growth.

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Know more

• Learn more about how OCEN can enable small and marginal farmers.
• Read this article to learn more about how technology can drive financial inclusion.
• Learn more about digital solutions of India’s financial landscape.

In a bid to address these gaps, Women’s World Banking (WWB) has partnered with relevant stakeholders in the financial sector to bring women-centred products, services, and policies to the market. At WWB’s Making Finance Work For Women Summit, IDR interviewed Mary Ellen Iskendarian, president and CEO of WWB, and Kalpana Ajayan, WWB’s regional head for South Asia, on the subject.

In this interview, Mary Ellen and Kalpana discuss investments that have been made towards enabling women’s financial inclusion, the gaps that still remain, and the challenges in developing financial products and services while working with partners worldwide to advance women’s economic empowerment. They also touch upon the inextricable link between digital literacy and financial inclusion in a world where digital financial services have become ubiquitous. 

How does India compare with other emerging markets when it comes to financial inclusion for women?

Mary Ellen: One of the biggest concerns we have in India that we don’t quite see to the same extent in other countries is the lingering social and cultural norms around owning smartphones. It’s a real issue here. That said, the investment that India has made in its digital public infrastructure—the Aadhaar system, PMJDY accounts, and UPI system—is head and shoulders above where other emerging markets are at the moment. I am thrilled that India is eager to export some of this work to other countries, with the G20 presidency really shining a light on how much tremendous work has been done here. It also shows what that kind of upfront investment can do and what kind of dividends it can pay down the line.

Speaking of investments India has made on this front, what else do you think needs to be done in the next five years to improve access to finance for women?

Mary Ellen: The PMJDY is a great innovation, but we at WWB have observed that although women in India open PMJDY accounts, their accounts tend to remain dormant. This suggests that the product either isn’t relevant to them or that they are not convinced of its relevance to their lives. So, I think that it will be critical for any infrastructure or product development that is rolled out in India over the next five years to take a step back and think, “How can we take women’s needs and the barriers women face into consideration before we launch?” Our work here in the last few years has been very focused on that issue of engagement with the PMJDY account. We, therefore, rolled out a savings product called Jan Dhan Plus alongside Bank of Baroda, and we’ve taken this to Indian Bank and Union Bank. We’re trying to incentivise women to save and to build savings behaviour. And once they’ve engaged with this account, there’s an opportunity then to cross-sell other products.

Bringing more women into the workforce of the financial sector is a great investment that India has begun.

One of the other things that I think parts of India are doing in a very exciting way is driving more women business correspondents (BCs) and women agents. The implementation of the BC Sakhi programme, which seeks to promote digital banking through women banking correspondents, has resulted in more women signing up for accounts, and a higher rate of conversion from signing up to actually depositing money. So, I think bringing more women into the workforce of the financial sector is another great investment that India has begun and should enhance in the next five years.

Kalpana: I also think that women’s access to credit is something that really needs to be addressed. And we’ve been working with the apex credit bodies in this country for this. In fact, Mary Ellen and I met the chairman of the Small Industries Development Bank of India (SIDBI) recently, and they expressed a willingness to offer loans to women entrepreneurs at rates that are significantly lower than commercial rates. But since most women in India don’t have a credit footprint, they’re rendered invisible to the institutions seeking to enable their access to credit. So how do you really make these women visible? I think this is what we must solve in the near future.

Mary Ellen: I think it’s worth doubling down on that, as many people may not understand this invisibility. For example, the self-help group (SHG) is an extraordinary institution, but often only one member of the group has any identification, which is actually just used for naming the group. So, she’s not even necessarily identified as the borrower. Therefore, the idea we discussed with SIDBI involves ensuring that the loans and repayment track records of these invisible women, who have been borrowing and have great repayment records, get registered with credit bureaus.

Research shows that barriers to finance for women have been as much about the ecosystem (market, social norms, etc.) as about lending institutions providing capital. How do you suggest we address this? And who needs to be working on it?

Kalpana: There is space for nonprofits engaged with women, financial institutions, and policymakers to work within their arenas to facilitate meaningful change. There is a definitive role for everybody in the ecosystem, including the husbands. For example, if there’s a phone in the household, does the wife get access to that phone? There are multiple ways in which you can make women participate. The Open Network for Digital Commerce (ONDC) is a great platform, and it can really help nano and micro-entrepreneurs by enabling their linkage to markets. For example, how will a small pickle-maker in the interior of Maharashtra get their product out? That’s where the ONDC can play a significant role. But how do you even bring her on board? How do you build visibility and awareness about an initiative such as the ONDC? I think there are many stakeholders in the ecosystem that need to work on it.

Mary Ellen, you’ve previously spoken about the improved access to smartphones for women. I was wondering if you could speak about the intersection of digital literacy and financial inclusion?

Mary Ellen: There isn’t just an intersection any more. The delivery of financial services to the last mile at an affordable price is going to be digital. So, it’s absolutely essential that women are confident in their use of the phone, and it’s very much the centrepiece of every product roll-out we conduct. We’ve done quite a bit of work on what we’re calling ‘digital financial capabilities’, because this isn’t just about understanding which buttons to press or being numerate, but really feeling a sense of confidence and ownership. The reason we fight so hard for financial inclusion is that we see it as fundamental to women’s empowerment. But if they’re not empowered to use the technology that will enable this inclusion, it’ll be a great loss.

Kalpana: Our definition of digital financial capabilities includes not just a skill and knowledge component, but also an attitude component. And that attitude is trust and confidence. So, for me, it’s not just about having the skill and knowledge to operate within the financial system, but you need to be confident and trust the system to meaningfully engage with the system.

What are some models or approaches that haven’t worked in emerging markets like India? And what are some that have seen more success? What can we learn from those?

Kalpana: A gap that still remains is the urban market. We’ve tried several initiatives in the urban market for low-income women, but we’ve realised that interventions such as educational camps—which are ideal for rural markets—don’t work in urban ones. This is because women in urban areas simply don’t have the time to assemble at a place and listen to people speak about financial literacy and related issues.

When we moved to rural regions from the three urban centres of Delhi, Mumbai, and Chennai—where we piloted the Jan Dhan Plus programme—we had to unlearn these things and introduce strategies that are relevant to the rural segment.

Mary Ellen: I won’t have as clean an answer as Kalpana, but there’s one thing that’s the greatest source of frustration for me, which I’m so determined to fight. So, WWB believes very strongly in the concept of customer lifetime value. This means that when we introduce a product to a financial service provider, we indicate how it would make this new client or a completely dormant client (as in the case of Jan Dhan Plus) profitable over a long time. When we present that kind of data to substantiate a pure bottom-line-driven argument but are met with rejection from the management of an organisation, I just feel like screaming.

When we have an MD or a CEO who’s really committed to the cause, they’ll push the initiative through.

I think it’s important to find a strategy that tips the balance, whether it’s being able to show greater risk mitigation through a product or present the issue as one that the senior leadership can adopt as a personal cause. The latter has been a very successful strategy for us, because when we have an MD or a CEO who’s really committed to the cause, they’ll push the initiative through. But this can be a source of immense frustration. And we’ve experienced this in all the regions that we work in.

But there’s also hope. For instance, there was a digital wallet that we delivered for a bank in another South Asian market. Again, we were able to demonstrate a customer lifetime value, but management broke our hearts and decided not to take it forward. But not even a year later, a bank in another country approached us with the agenda to implement something similar, and this bank is now doing gangbusters with literally the same model, with some local amendments to the product.

The economic crisis triggered by the pandemic has naturally had a devastating impact on women’s financial inclusion. How important is it to keep that at the centre as we rebuild?

Mary Ellen: We’re missing a big part of the picture if we only focus on women as being vulnerable or having suffered during the crisis. We must think of them as part of the solution for how we’re going to get ourselves out of this particular crisis. What I have observed in every country that we’ve worked in is that when we design products keeping women in mind, which usually means making something as easy to understand and quick as possible, men love them too. You can’t say the reverse. When there’s a product that’s designed for men, it just doesn’t work the other way. So it’s a worthwhile investment when you design for women, as you often reach both men and women.

Kalpana: I’m actually reminded of a quote I love from Mary Ellen’s book, which I think explains what financial inclusion is all about: “It’s not just a good thing to do, it’s the right thing to do.” This hits at the heart of what you described, what we call ‘women-centric design’. Pushing the women’s agenda is not only a social good, but it also makes business sense. If you design for her, it works for both.

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Know more

• Learn about how banks can enable women’s financial inclusion.
• Read this report on enabling women’s entrepreneurship through philanthropy.

India’s own handmade sector has been growing at a parallel pace. Its exports in FY 2021–22 totalled USD 4.35 billion, a 25.7 percent step up from the year before. In addition to forex, a substantial part of the sector’s revenue is generated domestically. In FY 2020–21, the Indian government pegged the handicraft and handloom sector at INR 25,706.3 crore (approximately USD 3 billion)—a conservative figure because of the nature of the business itself, which lies both within the bounds of the formal economy and outside it, conducted through online retail and organised craft fairs as well as tourist market stalls and doorstep sales. Of late, demand has received further fillip from retail conglomerates that have scaled up their social and artisanal business partnerships.

Second only to agriculture in the size of its workforce—numbering approximately 200 million artisans—the CMH sector, if streamlined, formalised, and levered by relevant technologies, can reap enormous dividends. It can do this through its contribution to the national GDP, and by fostering additional livelihoods, developing India’s entrepreneurial ecosystem, and meeting several SDGs along the way, including climate action through greener supply chains and gender equality by employing and empowering more women. The sector’s potential has never been greater, but whether it inches towards new opportunities or takes a quantum leap towards them depends on a key factor: finance.

Why money matters

Most enterprises in the handmade sector are micro, small, and medium enterprises (MSMEs), located largely in rural India and rooted in a range of cultural traditions. These handmade and craft-based MSMEs (HCMs) serve multiple arms of the cultural economy, from fashion to home decor and tourism, and include artisans and creative producers who shoulder the entire farm-to-consumer value chain.

Let alone scale up, tenuous finances can scupper the handmade sector altogether.

For all its growth and potential, HCMs are hard-pressed for finance and investment that can help them modernise and amplify their operations. According to one study, the credit gap for MSMEs is a staggering USD 397 billion. Finance paves the way for marketing and retail via digital platforms, garners new clients, strengthens and diversifies supply chains, and catalyses innovation in raw material, product, and organisation design, which in turn builds business, livelihoods, and community. Let alone scale up, tenuous finances can scupper the sector altogether.

A stark reminder of this was brought home by the COVID-19 pandemic when an estimated 22 percent of artisans lost 75 percent of their annual income. According to a dipstick survey, 40 percent of artisans were compelled to halt production for the length of the pandemic, citing lack of working capital to keep operations going, while sales for 70 percent of them fell by more than 75 percent.

Terms of estrangement

However, the pandemic was also a tipping point. It accelerated the transition to online sales and expanded, almost overnight, domestic and international markets, creating a new business-to-consumer model for the sector that ejected the intermediary. Newly alert to the sea of possibilities in sales and collaborative partnerships, HCMs are now eager to take the plunge. Financing a Handmade Revolution: How Catalytic Capital Can Jumpstart a Handmade Economy, a report by 200 Million Artisans (200M), finds that 95 percent of HCMs surveyed have sophisticated, digitalised modes of receiving payments, and 89 percent are focused on building brand, growth, and profitability. And yet, only one in 10 have easy access to finance that can help them achieve this.  

Here are some of the factors that stymie the sector’s growth.

1. Access to capital

Depending on where they are in their business journey, the financing needs of HCMs differ, but more than two-thirds need some form of financing. 200M’s report finds that approximately 85 percent HCMs need high-risk growth capital to scale; 78 percent need working capital to pay for designers, artisans, raw material, logistics, and so on; 80 percent need finance to innovate and experiment; and 72 percent need it for impact measurement and communication. HCMs typically fall back on their own savings, borrow from informal networks, or funnel their profits back into the operation to scale up.

Most HCMs fall into the ‘missing middle’—they are too big for microfinance and too small for bank loans and impact and commercial investors.   

This is why 88 percent of HCMs self-finance their operations and 65 percent prefer to rely on advances against orders. Less than 5 percent of the financing needs of the CMH sector are met by mainstream financing channels, including CSR offices, private investors, microfinance institutions, and handicraft councils. Forty-five percent avoid banks.

2. Women’s access to capital

The problems are compounded for women, who own more than 20 percent of the MSMEs in the country and constitute a significant part of the artisan workforce. Owning few or no collaterals to pledge, with limited mobility and financial literacy compared to men, women find it harder to avail of finance. Fifty-five percent of women-led HCMs surveyed by 200M are unaware of the financing options available to them, compared to 33 percent men-led HCMs, while 62 percent find it difficult to talk to investors, compared to 48 percent men-led HCMs. These are some of the reasons that 56 percent of women-led HCMs rely on self-financing alone, compared to 36 percent men-led HCMs.

3. Investor engagement

Wary of the paperwork, collaterals, and incompatible lending terms (like credit worthiness) stipulated by banks, non-banking financial companies (NBFCs), and mainstream financing channels most HCMs rely on their own resources, even though there are alternative financing instruments they can now turn to, such as convertible notes, purchase order financing, blended finance, and social impact bonds. Not only is their knowledge of new financing opportunities scant, but HCMs are also held back by their diffidence, finding it hard to engage with investors, speak their language, and provide them with growth structures and (hard-to-measure) data on impact they seek. Seventy-four percent of HCMs consider finding, accessing, and engaging with investors a huge problem.       

4. Deficient start-up and policy ecosystem

The sector needs to plug into a collaborative network of incubators, accelerators, and think tanks that can grasp its distinct challenges and offer customised solutions, such as providing relevant market intelligence, affordable due diligence and compliance, and public good resource repositories and tools for monitoring and evaluation. Eighty-eight percent of HCMs surveyed by 200M rely on founders, friends, and family for resources and advice.

The road to government policies and schemes is riddled with obstacles.

If the path to a collaborative ecosystem is absent, the road to government policies and schemes is riddled with obstacles. These include the maze of departments this broad and heterogenous sector has to navigate; the complex rules around GST structures, tax breaks, and incentives it has to become acquainted with; and the scattered and impenetrable information about them it has to understand. The report finds that 41 percent of HCMs struggle with GST payments, while 45 percent find it challenging to get industry certification to scale up.  

Catalytic capital: A solution

Financing and support to the CMH sector is limited to incubators, accelerators, and a few investors. What HCMs need is a new, purpose-built financing and funding paradigm that is aligned to their modes of production and diverse work cultures. Catalytic capital, a form of investment that is patient, concessionary, adaptable, and open to risk, has just what it takes to transform the CMH sector.

Catalytic capital from actors who haven’t traditionally invested in the sector—impact investors, family philanthropies, CSR, and retail givers—could play a critical role in offering customised investment solutions to the CMH sector. The report highlights that catalytic capital has the potential to:

• De-risk innovation pipelines and support new ideas across diverse value chains. 
• Raise the credibility, investment readiness, and impact potential of MSMEs, allowing them to scale and attract additional financing.
• Enable formal inclusion of first-mile artisan communities and encourage mainstream start-up actors to actively participate in the CMH ecosystem.
• Catalyse SDG impact and policy action by building an enabling environment to drive impact goals.
• Build accountability and incentives for impact generation by offering “better terms for better impact” to market-based HCMs.

Revolution road map

The time is ripe for a revolution in the CMH sector, but tilting the scales will require all actors to work in tandem. Here are some recommendations from the report:

Investors and funders can set up sector-specific, creativity-led portfolios that prioritise responsible consumption and production. They need to partner with philanthropic and policy actors to introduce catalytic capital offerings that de-risk financing for the CMH sector.

Policymakers should create an enabling environment for HCMs and investors by supporting data mapping specific to the sector; creating a single-window policy for schemes, grants, and information; and minimising the compliance burden by simplifying legal structures.

Ecosystem actors can create public-good infrastructure that enables the different players in the sector to communicate and collaborate. They can leverage technology to deliver data, market intelligence, and market access networks to stakeholders, and guide policy-makers and investors to direct the right capital across specific needs in the farm-to-consumer value chain.

Enterprises should seek access to tools, resources and collaborative networks and build a clear and differentiated value proposition centred around an understanding of the conscious customer as well as gaps in the value chain.

Innovations in technology, emerging business models, an evolving entrepreneurial environment, and an expanding marketplace have placed India’s creative manufacturing and handmade sector on the ledge of change. One study estimates that the country has a USD 140 billion low-skills manufacturing gap in clothing and textiles alone, a gap the CMH sector can easily plug under the right conditions. But those conditions can only be produced when capital, technology, and policy join hands. That’s when we’ll have a handmade revolution that will truly deliver the goods.

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Know more

• Read about how investing in women artisans can catalyse India’s economy.
• Explore case stories of enterprises in the creative and handmade sector.
• Read this story about the last hand-block printer in Gujarat.

This is surprising, particularly because the microfinance sector has displayed the ability to adapt. For example, it promptly responded to customer needs in the face of macroeconomic shocks such as demonetisation and the COVID-19 pandemic. During these periods, microfinance institutions (MFIs) implemented debt rescheduling, debt restructuring, and payment deferrals (allowing customers to make payments at a later date).

Evidence has shown that financial product innovations could be beneficial to both MFIs and their customers. A recent study conducted by Warwick with Sonata Finance, tested the viability of innovative products by offering a flexible repayment loan option designed to accommodate business seasonality. The customers could opt to implement a repayment ‘holiday’—a period of up to three consecutive months in which repayments were paused or reduced, with future instalments adjusted accordingly. The study found that offering a flexible loan option not only improved outcomes for borrowers—including business performance—but also did not adversely affect missed payments; in fact, those with repayment flexibility were 31 percent more likely to pay off their loan early. These findings are in contrast to the previous understanding within the microfinance sector that a flexible contract undermines repayment rates.

MFIs operating in India face challenges that prevent them from adopting financial innovations despite being beneficial for both lenders and borrowers. The following constraints limit the incentives and abilities of MFIs to prioritise designing and implementing innovative financial products. 

1. Technological constraints 

High default rates among MFI customers, where they fail to make payments for a long time, translate into poor financial health and risky business outcomes for the MFIs. Recent technology advancements in screening, record keeping, communication, and cashless repayment may help mitigate risk of customer default, and offer new opportunities for MFIs to provide contract innovation. However, there are at least two barriers that prevent MFIs from adopting such technologies. First, for smaller MFIs in particular, developing and integrating these tools in their operations remains expensive given their relatively small customer base. Second, adopting these technologies may lead to a weakening of the in-person relationship between bankers and lenders, which can exacerbate free-riding behaviours. 

2. Regulatory barriers 

In March 2022, the Reserve Bank of India announced less stringent lending requirements for MFIs, which allowed these financial institutions to offer larger ticket-size loans and mortgage loans. However, insufficient collateral from customers prevents MFIs from extending these financial products, calling for the need to revise the regulation on collateral requirements among low-income borrowers.

Additionally, the support and relief launched by the Government of India, such as the credit guarantee scheme, restructuring of loans, and short-term loans, helped micro entrepreneurs navigate the pandemic. Such schemes presented an opportunity to make repayment flexibility a standard feature of microfinance contracts.  These schemes paused interest accumulation and repayments (moratorium), and enabled MFIs to keep appropriate lending rates without incurring losses. However, these were discontinued once the pandemic ended. In light of their success, one open question is whether the government should consider reinstating these initiatives during ‘normal’ times as well, as they provide liquidity buffers to MFIs to mitigate losses and hence present an incentive for lenders to further introduce financial innovation.

3. Customer demand 

Micro and small entrepreneurs are increasingly interested in flexible contracts to meet their business needs. Recent evidence suggests that customers’ demand for flexible loans can be as high as 30 percent. Strengthening partnerships between commercial banks and FinTech enables banks to offer new products—including payment apps, peer-to-peer lending, and robo-advisers—which represents an alternative to traditional MFI loans. MFIs’ close connections with its customer base is one of its main strengths. However, given that customers are willing to opt for innovative products, and there is availability of such products, it is questionable whether MFIs will be able to retain their clients in the long run. To ensure high demand for their products, MFIs will have to make adequate marketing efforts and introduce protocols to explain the details of more complex products to a diverse customer base.

One of the biggest challenges for the microfinance sector in the near future will be its ability to incorporate technological and financial innovations within its operations.  A limited set of product and technology innovations have been introduced in the past, so their scalability is still under question. This is partly due to MFIs’ lack of incentives because of regulation, technology, and market competition. However, the success of schemes introduced during the pandemic and innovation in products should encourage MFIs to experiment.

Natalie Theys contributed to this article.

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Know more

• Learn how banks can enable women’s financial inclusion.
• Read this analysis of the microfinance sector to learn about its growth.
• Read this report to learn the role digital technology can play in bringing innovation to microfinance.

However, despite now having the capital to start her enterprise, Rupali faced a host of other challenges. She was not proficient in the craft of designing instruments. This meant that while she had the necessary raw materials, she did not have the expertise to execute her business. Additionally, the leather-instruments business is traditionally male dominated, and people around her pressured her to give up on it. Rupali began to worry that she would not be able to repay the loan she was given, and considered reselling the raw material she had bought, and giving up on her dream.

Around that time, she attended a session held by Mann Deshi on running an enterprise. It inspired her to persevere, learn the trade, and improve her business acumen. Her enterprise gradually began to grow, and she was able to secure bigger loans. Today, her enterprise employs 10 women and is capable of supplying 2,000 orders a month.

Rupali’s story is the exception, not the norm. Women entrepreneurs in India face several roadblocks on their path to establishing a viable enterprise. To understand these barriers and learn about possible solutions, Asia Venture Philanthropy Network (AVPN), with support from JP Morgan, organised a roundtable focussed on enabling greater access to finance for women entrepreneurs.

The participants included representatives from non-banking financial companies, corporate foundations, and nonprofits. Drawing from their learnings from their pilot projects and experiences in the field, they offered insights into the interrelated factors that limit women entrepreneurs’ access to finance and how they could be addressed.

1. Managing risk at an institutional and individual level

Financial institutions underwrite loans based on formal financial history and data. Many women in rural and peri-urban areas are unable to provide such data, and are classified as high-risk borrowers as they do not possess assets/collateral against which loans can be underwritten. This prevents them from receiving loans.

To address this, organisations like SEWA Bharat and other nonprofit/cooperatives that work closely with the women in the region provide additional data points to potential lenders. This includes details regarding the woman’s household finances, family dynamics, potential for income generation, etc. According to Manish Thakkar, CEO of Avanti Finance, the informal data points provided by community based organisations enable non-banking financial companies (NBFCs) to feel more confident about the women’s ability to repay the loans and start viewing them as less risky borrowers.

Being part of a collective enterprise also makes space for negotiation with the women’s families.

The entrepreneurs themselves must also grapple with risk. Social norms dictate that their care related responsibilities take precedence over their entrepreneurial functions. As a result, they are likely to establish enterprises that are easier to operate in tandem with their familial duties, but harder to scale. This is evidenced by a recent study commissioned by AVPN and JP Morgan and conducted by the research team at LEAD at Krea University, which indicates that approximately two-thirds of women entrepreneurs in urban and peri-urban areas operate enterprises from within their own homes and earn a median monthly income of less than INR 25,000. Additionally, women who fail in an entrepreneurial endeavour are likely to face immense societal scrutiny. This contributes to making them risk-averse and consequently plateaus the growth of their enterprise.

Dr Akhil Shahani, CEO of the Shahani Group—an education nonprofit—advocated for educational initiatives that would help create of an environment that fosters risk acceptance among women entrepreneurs and their families. SEWA Bharat’s Sanjana Mohanty suggested collectivising women in the form of cooperatives/ producer companies as effective de-risking mechanisms. SEWA has observed that being part of a larger group that collectively runs a venture reduces the financial risk involved for each woman and also creates solidarity for work and towards their vision of economic empowerment. Being part of a collective enterprise also makes space for negotiation with the women’s families, as they are more inclined to allow women to work in such a set up. Lastly, the leadership opportunities in such enterprises provide grassroots women the chance to govern their work better.

It’s also important for external stakeholders to understand the value of patient capital and for MSMEs to plan ahead for the risk of limited working capital and loan repayments. Susan Bhaktul from Industree Foundation, an organisation that provides skilling, and livelihoods, by supporting professional management to assist and handhold artisanal collectives underscores this point. “When we ask a funder (for funding), an expectation on ROI from a funder the very next month is quite challenging. Large companies usually take three years to yield profits and results, so why is an MSME expected to deliver the return within a month?”

2. Capacity building for technical and business skills

As Rupali’s journey demonstrates, women entrepreneurs in urban and peri-urban areas are significantly hindered by a lack of technical, business management, and financial skills. The effects of their capacity-related deficits are further exacerbated by the digital divide. Echoing this sentiment, Sanjana Mohanty says, “Women know their work, and if you work with them and provide them with feedback, they will improve their quality of work; but to improve they need consistent handholding and mentorship to think more strategically for their enterprises.”

Centrally sponsored schemes can serve as a great catalyst for women-led enterprises.

Based on her experiences as the former Deputy Head of RBL Bank’s CSR, Shachi Kaul emphasised the importance of a “forward linkage” beyond simple skilling. She mentioned that when being trained in a trade, women should be allowed to develop “a sensibility that appeals to urban people, because that’s where their market is.” For women entrepreneurs to ultimately succeed, they need to deliver goods/services that meet the certain quality standards, and capacity building initiatives serve as a pathway for ensuring the same. Additionally, producing quality goods will help make their enterprises profitable, and this will allow women entrepreneurs to receive greater funding from CSR organisations, which assess enterprises based on their long-term sustainability. 

Helping women entrepreneurs access government schemes by providing them with information regarding relevant ones and training them in bookkeeping and legal compliance is also critical. Centrally sponsored schemes can serve as a great catalyst for women-led enterprises that lack formal funding sources, but they can only avail such schemes if their enterprises are registered and demonstrate good bookkeeping.

3. Access to markets

Providing women entrepreneurs with access to markets where they can sell their products is integral to enabling their success. Providing market linkages helps leverage the skills developed by women entrepreneurs into sustainable revenue. A B Chakravarthy from Upaya Social Ventures highlighted two organisations from their portfolio—Manikstu Agro, which works with goat farmers in Odisha to ensure they receive a fair price for the goats they sell, and Sirohi, which takes products made by women artisans to ecommerce platforms—as examples of how these market linkages are being established in different parts of the country. 

The participants also recommend using philanthropic money to bring in highly skilled professionals that can help these enterprises with communications, branding, and other strategic inputs that can help them be viable in the market. Since the increasingly competitive and digital nature of the market may render it a space that rural/peri-urban women entrepreneurs may not be comfortable in, providing them with exposure to industry experts could also help them immensely. 

As the participants outlined, tackling the issue of women entrepreneurs’ limited access to finance must take into account the various interrelated factors that hinder it. A strategy for sustainable growth must provide them access to finance as well as solutions that address their capacity building and market related challenges. 

By sharing innovative solutions based on their experiences in the field, the participants provided a blueprint for enabling such change. Although there is still much work to be done, philanthropic collaboration that pools the funds and expertise of a diverse set of funders can address the gaps in present interventions and enable the sustainable transformation of women’s entrepreneurship in rural and peri-urban India.

*All quotes in this article from a session titled ‘Enabling greater Access to finance for women owned small scale enterprises’ at AVPN’s South Asia Social Investment Summit 2023

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Know more

• Read this report by AVPN on women’s entrepreneurship in India.
• Read this article to learn more about women in the manufacturing sector.

Shaheen Malik, founder of Brave Souls Foundation, an organisation that works to rehabilitate acid attack survivors, says, “While there is a minimum compensation, it is very hard to avail due to the long and tedious bureaucratic process. And there is no rehabilitation scheme. There is no uniform pension scheme across states. Even disability pension is barely INR 500–600 [in many states].” Shaheen also underscores that the compensation provided by the government is usually spent on the first surgery, which can go up to INR 2 lakh. No further rehabilitation opportunities or financial compensations are provided to support the survivor. 

In the case of self-inflicted burns, there are no compensations provided by the government. Swetha Shankar from International Foundation for Crime Prevention and Victim Care (PCVC), a Chennai-based organisation that helps burn survivors, explains that these cases are often registered as attempted suicide. Underlying domestic violence is not acknowledged and charges of abetment to suicide are not filed either.

For families with daily wage earners, staying with the survivor in the hospital means losing out on income. Households run out of savings very quickly and get into debt. Swetha says, “When this happens, the family might push for an early discharge and take the survivor home, which is detrimental to their health.” To ensure this does not happen, providing support to the caregivers becomes necessary. It is important to make sure that the survivors’ families have all their meals and money for children’s education and tuition fees.

Navigating employment

Shaheen explains that even after being discharged, the survivors require a source of income that pays enough for the multiple surgeries that they may need to go through. But this becomes difficult as the injuries dictate their livelihood choices. She says, “Their career changes a lot [and many need to start over]. We have a survivor who has an MBA but now that she has lost her vision, she will have to learn Braille and start all over again.”

Since many survivors are also young and have not had opportunities for higher education and vocational training, skill building is a key component in their rehabilitation. Shaheen says, “Learning English and computer becomes an important part of training for employment, because these skills open up job opportunities. In addition to speaking with companies for employment, we conduct language classes, yoga classes, computer classes, and legal awareness camps for survivors.”

Psychosocial support is significant part of economic empowerment because burns affect the survivors’ self-image.

Psychosocial support is another significant part of economic empowerment because burns affect the survivors’ self-image. They are worried about how the injuries alter their physical appearance and how they are seen in public. Swetha says, “Social outings are part of the rehabilitation process. The purpose of these outings is to make them feel comfortable in a public space. They also learn how to deal with intrusive questions from people about their burns.” Exposure to public spaces thus becomes a pivotal step in their social reintegration.

PCVC, using their psychosocial counselling process, also thinks through what streams of employment work best for an individual survivor. Swetha explains that they hold long conversations with the survivors in order to understand this better. “Sometimes they respond saying they were always good at math, or that they were good at maintaining the budgets at their house. And we provide them with trainings that can help turn that into an employment opportunity,” she adds.

However, skill training is rendered futile without appropriate employment opportunities. Many nonprofits and CSR initiatives continue to invest in training survivors to work in the beauty industry. But Shaheen says, “Survivors often have disabilities such as [partial] blindness, which makes it difficult for them to work as beauticians or tailors.” She adds, “These jobs do not pay well but remain a popular option for many survivors due to lack of better opportunities.”

Navigating the workplace

While gaining employment itself is a massive hurdle for survivors, many unique challenges also emerge when they do find a job. A lot of stigma is attached to a survivor’s appearance, and co-workers may sometimes disregard a survivor’s boundaries and comfort in order to probe more. The pyschosocial support should equip survivors with the ability to vocalise when people are making them uncomfortable. Swetha says, “Many survivors learn from their peers on how to politely tell someone to stop when they’re asking intrusive questions.” PCVC also has many mirrors in their rehabilitation centre so that the survivors become more comfortable with their reflection and how they look.

While learning to draw boundaries and feeling comfortable in public are important, it is imperative for employers and co-workers to go through sensitivity training. Sometimes this discrimination by co-workers is rooted in the deep dislike for the ‘privileges’, such as leave days, given to the burn survivors by the employing organisation for medical reasons or to attend to case proceedings. Swetha says, “The survivor should never be made to feel grateful for the job. If they are facing discrimination at a workplace, nonprofits such as PCVC help them in addressing the issue with the manager, who could help put adequate measures in place. However, if that also doesn’t work out, the nonprofits should help them find other opportunities.”

Gaps in policy

Many organisations, as part of their inclusivity drive, are keen on hiring burn and acid attack survivors. However, the lack of sensitivity among the general public and inadequate support from the government continue to imperil the lives of the survivors. Even getting disability certificates is a challenging task. “Through the course of my work, I have realised that while people know about this, they’re not really sensitised about the issues survivors face,” says Shaheen. The government does not provide any help other than the minimum compensation. No support or subsidies are offered by the government when it comes to jobs. “We hold meetings with governments, but then months pass and nothing ever happens. We need policy-level interventions,” adds Shaheen.

Self-inflicted burn survivors, who are not even afforded any compensation, struggle to find support. Swetha notes that a centralised burns policy that includes self-inflicted burns would streamline the entire process monumentally. “We will be able to work with the social welfare department and all the schemes and initiatives they have,” she adds. 

It is important that prevention programmes include measures against domestic violence, which is the root of the issue.

Curbing domestic violence is an imperative measure in order to end cases of acid attacks and burns. “Ninety percent of the cases we handle involve domestic violence,” states Swetha. It is important that prevention programmes include measures against domestic violence, which is the root of the issue. Banning the sale of acid, kerosene, and loose petrol has also become an important part of the conversation on burns prevention. “India has banned the sale of loose petrol, but we still need to address the root cause of the problem, which is domestic violence.” A ban on kerosene comes with its own challenges since LPG, even with subsidies, cannot be afforded by everyone.  

Recognising acid attacks and self-inflicted burns as gendered violence and ensuring that policies acknowledge this and focus on a sound rehabilitation process is important. Swetha adds, “Nothing impactful is going to happen unless we get our messaging right.”   

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Know more

• Read this article to learn about the legislative support available for acid attack survivors.
• Read this article to understand how the police can be more responsive to gender-based violence.
• Read this report by PCVC on the state of burn survivors in India.

Savings can provide a critical safety net to women, offering them independence and help in emergencies. However, stories such as those of Phoolbano and Shareena are not commonplace in India. With the country aiming to become a USD 5 trillion economy by 2024–25, it is imperative that it invests in women’s economic empowerment through financial inclusion. When women are able to access useful and affordable financial products and services, they have more opportunities to generate income, accumulate assets, and make decisions that affect their lives. This in turn positively impacts not only the women themselves, but also their communities and the economy. Further, regular formal savings can also unlock access to other financial services such as insurance, pension, and credit that build the women’s resilience against external shocks.

Initiatives such as the Pradhan Mantri Jan Dhan Yojana (PMJDY), which aims to provide banking services to underserved communities at the last mile, are critical to India’s journey in this regard. In particular, PMJDY accounts have provided millions of Indians with the opportunity to save in banks. Since its launch in 2014, the number of accounts opened has tripled from 14.72 crore in March 2015 to 46.25 crore in August 2022. Fifty-six percent of these accounts are owned by women.

However, rather than saving, women are actively using their PMJDY accounts to access the benefit transfers they receive from government initiatives. Our research at Women’s World Banking has confirmed that women from rural areas and low-income groups perceive banks as spaces not meant for them or their small sums of money. Additionally, the Inclusive Finance India Report 2022 found that more than 127 million adults made their first digital payments directly from their accounts during the COVID-19 period; however, women were found to be less savvy in undertaking digital transactions than men.

What keeps women away from formal banking?

Undoubtedly, women are intuitive savers, but not all save formally with banks. They continue to rely on traditional saving methods, such as keeping the money in their homes. Deepening financial engagement through saving, building accounts, and credit histories or accessing other financial products such as microinsurance, pensions, or microloans are not women customers’ priorities. There are many reasons for this, the main one being that women perceive their incomes as negligible, and therefore not suitable for saving in banks. Culturally, women are also not enabled or taught to make financial decisions, and thus they struggle for autonomy. This often forces them to create their own saving mechanisms that give them a sense of control. As a result, women do not perceive the bank as a place to save—especially ‘small’ amounts—as it feels unfamiliar and more daunting.

For instance, our research found that though rural women own bank accounts, they do not engage with them. Rural women have few sources of income that they can call their own. Even when they participate in their family’s agricultural activities, they do not identify it as contributing to family income. They also typically do not participate in household financial decision-making, or in the utilisation of direct benefit transfers (DBTs) in their PMJDY accounts. Simply put, they do not see the value in banking services.

Things are slightly different in urban India, where many low-income women work to earn a living and use their PMJDY accounts to access government benefits, but not necessarily save. We found that low-income women in urban areas don’t consider saving with the bank convenient and are unaware of their local business correspondents. This furthers their inertia to change behaviour.

Why should banks invest in women?

Beyond financial inclusion, there is also a business case for banks to invest in women customers. As per our estimates, banks can potentially unlock an estimated inflow of INR 20,000 crore in deposits, while disbursing INR 10,000 crore in overdrafts to 20 million beneficiaries, if 100 million low-income women initiate a habit of small-scale savings.

We implemented a Jan Dhan Plus programme across Mumbai, Delhi, and Chennai to encourage women to engage with their PMJDY accounts. We found that when both women and men are active PMJDY savers (making at least four deposits of approximately INR 500 a year), the average bank balance of women is 30 percent higher than that of men and a woman customer’s lifetime revenue is at least 12 percent higher than that of a male customer. This is because women hold higher balances in their accounts. This makes it even more imperative that banks begin to take women customers seriously.

Building trusting banking relations with women

Through our work with India’s public sector banks across urban, rural, and peri-urban areas, we found that the first step was to reach women at their homes and community spaces and to create awareness through relevant and culturally appropriate marketing campaigns. This is key since many low-income women face mobility restrictions in leaving their homes, but are allowed to venture out in groups or gatherings with other women.

Banking correspondents (BCs) and BC sakhis (appointed by the National Rural Livelihood Mission to work as women banking agents at the community level) are highly effective networks in reaching women PMJDY customers. In urban areas, 32 percent of women who engaged with BCs considered saving with the bank and 18 percent maintained the savings behaviour.

However, despite banks’ investment in developing a network of BCs to offer last-mile banking services, not all BCs have the skills—beyond providing access to government benefit transfers—to engage with women PMJDY account holders in rural areas. Most BCs were focused on providing only cash-in and cash-out services, and very few actively encouraged women to invest in other products such as the Jan Suraksha insurance and pension plans.

BCs who were good communicators and relationship-oriented were able to connect with women customers better, encourage them to maintain savings in their accounts, and cross-sell insurance and pension. Whether it is a BC in a rural area, operating from their BC point, or in an urban area where the kirana stores double up as BC points, women customers need to develop a trusting relationship with this key network of last-mile functionaries.

In urban areas, women BCs were three times more successful in engaging and cross-selling financial services to low-income women customers. BCs can also realise better revenues and commissions by actively engaging women customers and cross-selling insurance and pension. This helps in building credit history, availing loans and credit, and promoting savings.

Banks thus need to invest in strengthening the capacities of the BCs and the BC sakhis. It is critical that these agents, especially women agents, are trained in business management and gender sensitivity to service low-income or rural women customers better and in a manner that feels welcoming. Banks and livelihood missions must further invest in supporting the supervision of BCs and BC sakhis, giving them on-the-job feedback, along with timely recognition of their services to cement the network and encourage more people to become banking agents.

The merit of women-centred designs

A women-centred design approach focuses on addressing the needs of women and overcoming the barriers they face in saving at a formal bank. Creating a mental model of the bank as a welcoming place for them to save, making it easy for women to save at banks using accessible and trusted channels, making savings relatable and rewarding, motivating and nudging them to build a habit of saving formally, having a stronger women-to-women banking network, and creating relevant and simplified banking products for women are definitely steps in the right direction. Leveraging digital technologies can unleash the potential for India’s economy and gender-inclusive finance. Finally, tracking sex-disaggregated data is key to understanding the differences in women’s customer behaviour, which will further help financial institutions and policymakers to advance financial inclusion.

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Know more

• Read more about financial inclusion of women in India.
• Learn how philanthropy can be mobilised to help women entrepreneurs in rural and peri-urban India.
• Learn more about how women’s access to credit can be improved.

The Oxfam report identifies education, healthcare, and finance as sectors that underwent rapid digitisation during the pandemic. Here’s a look at some of the findings from the report that bring to light how the digital divide impacted socio-economic inequalities during COVID-19 with respect to these three sectors:

1. Online education remained a challenge for many

Access to the internet through any kind of device was found to be far better in urban India at 44 percent than in rural areas at 17 percent. Across different caste groups as well, only 4 percent of students from SC and ST communities had access to a computer and the internet.  

It is important to note that the digitisation of education yielded great results for start-ups such as Byju’s, which was valued at USD 10.8 billion during the pandemic, an amount equivalent to the combined annual income of 25 million Indians at the time. In addition to this, EdTech products (instruction aids in classrooms for teachers or at home for students ) continue to remain inaccessible for many due to their high costs. The average cost of these products is estimated to be INR 20,000, while the average income of the poorest 20 percent households is INR 25,825.

2. Teachers struggled to deliver education digitally

More than 80 percent of teachers reported facing challenges in teaching online. Many of them also had issues related to data expenses and connectivity. Furthermore, 20 percent teachers reported that adequate training on delivering education digitally was not provided to them. Two out of every five teachers also claimed not to have access to the devices they needed to teach digitally.

3. Online learning came at the cost of mid-day meals

Unavailability of mid-day meals, that would be typically provided in-schools, was also a cause of concern for parents when schools shut down during COVID-19. Even though the central government in March 2020 advised all states to continue providing eligible children with meals, the delivery on-ground was lax. More than 35 percent parents reported that their children did not get mid-day meals during the pandemic.

4. Digitisation of healthcare did not improve access to it

The National Digital Health Mission (NDHM), also known as the Ayushman Bharat Digital Mission, was launched during the pandemic with the aim of building a digital health ecosystem in India. However, inadequate digital infrastructure and literacy, for both the receivers as well as the health service providers, remained a challenge for its implementation. Tools such as e-Sanjeevani—a telemedicine platform that connects rural areas with quality healthcare providers—and the maintenance of electronic health records of patients, for instance, require access to a smartphone or a computer and the internet. With over 70 percent of the population in India having poor or no connectivity to digital services, the digitisation of healthcare didn’t necessarily improve access to public health services the way it was intended to.

5. In fact, this digitisation made it harder for many

Take the distribution of COVID-19 vaccines through the CoWIN app as an example. The need to book slots online presumed literacy as well as digital literacy. Many either did not have the resources (internet, smartphone, computer) or the digital know-how to book a vaccine slot online. Neither could they download their vaccination certificates easily from the app. This caused further delays in them receiving the vaccines. According to Oxfam’s 2021 health inequality report, as of May 2021, while 30 doses were administered per 100 persons in urban India, only 12.7 were administered in rural India. CoWIN thus inadvertently created a hierarchy in vaccine accessibility and excluded the digitally disconnected.

Health experts have gone as far as to say that not having access to broadband internet will now be an additional barrier to healthcare delivery. India’s medical apps market, for instance, is estimated to reach INR 337.89 billion in the next three years. Since the pandemic, the use of healthcare apps such as 1mg and Practo and wearable devices such as blood pressure monitors and fitness bands have seen a drastic rise. However, these services only cater to the English-speaking, digitally literate class.

6. The growth of digital financial services did not guarantee financial inclusion

The Unified Payment Interface (UPI) and cashless/electronic transactions saw rapid growth during the pandemic. However, it is important to note that this growth wasn’t uniform. The richest 60 percent, for instance, are four times more likely to do a digital payment than the poorest 40 percent in India. This can be attributed to the fact that the tendency to use formal financial services, such as private or commercial banks, is low among marginalised communities such as women, youth, people living in remote rural areas, and ethnic minorities. It is lowest for ST households in rural India. Additionally, only 41 percent of small and marginal farmers use public and private sector banks. This is because most of them don’t have legal documents such as Aadhar, PAN, ration card, or voter ID, making it hard for them to access bank accounts and other financial systems.

It is evident from the findings of the report that the process of digitisation alone cannot be considered the ultimate solution for all our challenges. Without addressing the socio-economic context of the digital divide, especially in India, the ongoing digital revolution across healthcare, education, and finance, if left unchecked, will not only continue to foster inequalities, but may also worsen them.

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Know more

• Read the complete Oxfam India Inequality Report 2022.
• Learn why EdTech in India requires stronger regulation.
• Learn how the digital divide is holding back women in India.

Inter charity donations—Potential setback for grant making organisations

Inter charity donations (i.e. one tax exempt charitable trust or institution donating to another tax exempt charitable trust or institution) continues to be allowed but with various restrictions.

Under an earlier amendment one charitable organisation could donate to another charitable organisation but not from its ‘accumulated income’. As we are aware one of the key conditions for tax exemption given to charitable organisations is applying or spending at least eighty five per cent of the total income every financial year. If the organisation is unable to spend this minimum amount it has the option to accumulate the same for up to five years. However, this accumulated amount must be spent by the organisation on its own activities and cannot be donated to another charitable organisation.

Later, the Finance Act disallowed charitable organisations from giving donation to another charitable organisation, whether from its accumulated or current year’s income towards the corpus of another charitable organisation.

Now under Finance Bill 2023 it is proposed that in addition to the above restrictions, if one charitable organisation donates to another charitable organisation only eighty five per cent of such donations given will be considered as application of income for the donor charitable organisation. In other words if Trust A donates a sum of Rs. 100,000/- to Trust B, in the books of account of Trust A while Rs. 100,000 will reflect as given, only Rs. 85,000/- will qualify as ‘application of income for charitable purpose’.

This may prove to be a potential setback for purely grant making organisations unless of course they spend one hundred per cent of their total income every year and not avail benefit of stashing away fifteen per cent towards reserve after applying eighty five per cent of the income.

Application of corpus

Under an earlier amendment, if a charitable organisation decides to use its corpus or borrow by way of a loan, that amount would be considered as application of income only in the year the amount is put back into the corpus fund or the loan is repaid.

Under the Finance Bill 2023 it is proposed that application out of corpus or a loan before April 1, 2021 shall not to be allowed as application for charitable or religious purposes even when such amount is put back into corpus or the loan is repaid. This is in order to avoid double tax deduction.

Further, deduction shall be allowed only if the amount taken from the corpus is put back into corpus or the loan is repaid within five years from application out of the corpus or loan.

Date for filing Form 9A and 10 advanced

To reiterate, in every financial year a tax exempt charitable organisation is required to spend at least eighty five per cent of its total income. In case income is received late in the financial year the trust can exercise option under section 11(1) to use the income in the immediately following financial year by filing Form 9A or accumulate the unspent income u/s 11(2) for up to five years by filing Form 10.

Both Form 9A and Form 10 could earlier by filed by 31st October. However, Finance Bill 2023 has now proposed that Form 9A and Form 10 must be filed two months before the last date for filing the tax return in ITR 7.

As such, the last date for filing Annual Tax Return in ITR-7 is 31st October. Audit Report in Form 10B must be filed by 30th September and now Form 9A or Form 10 must be filed by 31^st August.

Timely filing of returns

It is proposed under Finance Bill 2023 that tax exemption under sections 10(23C) and 12AB shall be available only if the return of income is filed by the trust or institution within the time prescribed under section 139(1) [i.e. 31st October] or 139(4) of the Act.

This amendment will be applicable from Assessment year 2023-24 (Financial Year 2022-23) and onward.

Registration for tax exemption

Under Finance Act 2020 organisations enjoying tax exemption u/s 10(23C) or 12A / 12AA were required to re-validate their registration for tax exemption as also for tax deduction u/s 80G. Newly established organisations could apply for provisional tax exemption and tax deduction for a period of three years.

Under Finance Bill 2023 it has been proposed that trust and institutions that have not commenced activities can only apply for provisional registration under 10(23C) or 12AB and section 80G. Trust and institutions that have commenced activities can only apply for regular registration under 10(23C) or 12AB and section 80G.

Such applications shall be examined by the Principal Commissioner or Commissioner as per prescribed procedure and where the Principal Commissioner or Commissioner is satisfied about the objects and genuineness of the activities and compliance of other requirements provided in law, registration or approval in such cases shall be granted for three or five years.

Time frame for disposal

The Principal Commissioner or the Commissioner shall pass an order granting or rejecting such applications within six months calculated from the end of the month in which such application was received.

Powers to cancel registration

Provisional registration or re-registration granted on incomplete or incorrect applications shall be treated as ‘specified violation’ and such provisional registration or re-registration orders can be cancelled by Principal Commissioner or Commissioner after providing opportunity of being heard (applicable from Assessment year 2023-24 onward).

The above amendments will be applicable from 1^st October 2023.

Exit tax

Finance Bill 2023 has proposed an ‘Exit Tax’ under section 115TD of the Income tax Act if a trust or institution registered under section 10(23C) or 12A or 12AA has not applied for re-registration or does not apply for renewal after expiry of five years or the trust or institution registered provisionally does not apply for regular registration after expiry of three years.

The above amendment will be applicable from Assessment year 2023-24 (Financial Year 2022-23) and onward.

Benefit of section 80G withdrawn for three trusts

Benefit of tax deduction under section 80G has been withdrawn for contribution to Jawahar Lal Nehru Memorial Fund, Indira Gandhi Memorial Trust and Rajiv Gandhi Foundation.

This article was originally published on Centre for Advancement of Philanthropy.