Prioritizing financial literacy for women borrowers

The NITI Aayog’s latest findings about the significant growth in the number of women availing retail credit in the country to meet personal and professional goals are indicative of more and more women seeking loans to become key contributors to household income. Financial self-reliance and access to credit propel entrepreneurial aspirations that explain the growth in women-headed enterprises in the country. Imparting financial literacy is crucial to prevent credit availed by women from becoming non-performing assets and adding to household debts. The report titled “From Borrowers to Builders: Women’s Role in India’s Financial Growth Story,” published by Trans Union CIBIL, Women Entrepreneurship Platform’s (WEP) of NITI Aayog and Micro Save Consulting (MSC), has highlighted the trend of women borrowers increasingly seeking credit for entrepreneurial growth as an encouraging development. However, a key finding included in the report is that consumption loans (i.e., personal loans, credit cards, and consumer durable loans) remain the most preferred credit product among women borrowers, with 36% of women holding at least one consumption loan as of December 2024, up from 33% in December 2019. It has also brought to light that “access to finance remains a significant hurdle, with many women entrepreneurs struggling to secure loans due to gender biases, lack of collateral, and limited financial literacy.” The key constraints listed in the report are women often finding the banking system unwelcoming and intimidating, discouraging full financial participation, and many banks failing to offer advisory services tailored to women’s needs; many women lack the necessary documentation, guarantors, and collateral for productive loans; some women, despite being credit-ready, avoid formal loans due to social norms, fear of default repercussions, and complex application processes; 79% of women-owned businesses are self-financed, with only 7% of MSME credit directed to women. Lenders perceive women as higher-risk borrowers due to limited credit history and business experience, and most women-led MSMEs rely on non-collateral loans. These findings corroborate the hard reality of a large section of women borrowers turning to microfinance institutions (MFI) for loans and gradually being pushed into a debt trap as credit availed was mostly used for personal consumption, such as the purchase of smartphones and household goods, and not invested in productive work or income-generating activities. This subsequently led to the Assam government announcing a loan waiver scheme—the Assam Micro Finance Incentive and Relief Scheme, 2021—to protect women from falling into the debt trap aimed at benefitting 2.22 lakh women microfinance borrowers in the state. Banks and other formal lending institutions simplifying the documentation process and providing adequate financial education to women borrowers as individual applicants, as well as women’s collectives such as self-help groups and women’s cooperatives before loan disbursal, is essential to empower them to refund the loans and make timely payment of loan instalments. The report points out the lack of tailored financial products considering women’s unique financial needs, such as flexible repayment structures, as one of the major constraints faced by women borrowers, explaining their overdependence on the informal credit market as well as overselling MFIs for credit requirements. Most women in Assam are traditionally skilled in weaving and livestock rearing, entrepreneurial ventures by women-headed enterprises in these sectors can grow into successful business enterprises provided they get access to bank loans without hassle and are imparted training to utilize the traditional skills for production on a commercial scale and manage timely loan repayments. Recommendations made in the report include supporting “credit-willing” women entrepreneurs to become “credit-ready” by promoting digital transactions, bookkeeping, and business formalisation. Grassroots-led digital capacity-building can enhance women’s confidence to access credit and grow their businesses, it states. Another key recommendation that also warrants active consideration and implementation by the government and other stakeholders is ensuring greater representation of women in product design, decision-making, and delivery roles to ensure that financial services better meet women’s needs. The collaborative study acknowledges that a promising shift is evident among younger generations who are embracing financial tools, understanding the importance of credit, and leveraging formal credit systems to achieve personal and professional goals, but addressing the credit requirement of older generation women is important to prevent a generational divide, as it will only lead to deprivation of those women, particularly from rural areas, who have mustered the courage to overcome their marginalisation due to lack of access to finance and income to pursue their dreams. The challenge of inadequate financial education also needs to be addressed in government-sponsored cash incentives for undertaking entrepreneurial ventures so that financial support extended from taxpayer’s money is judiciously utilised for productive work and not spent for personal consumption requirements. Helping individual women or women’s collectives to make their business ventures and entrepreneurial initiatives a successful commercial activity will help them earn the income they need to meet such needs. Empowering women to become financially self-reliant has the advantage of strengthening state and national economies.