This article by MSC and Financial Sector Deepening Uganda explores how microfinance group lending boosts the growth of micro, small, and medium enterprises (MSEs). It highlights the advantages of group lending over individual lending, particularly for those who lack traditional collateral. It focuses on the empowerment of women and youth. The article explains how group lending has expanded financial access effectively through a case study of a successful microfinance institution. Additionally, it shares a client’s story to underscore the positive impact of this approach on marginalized groups.
The article was first published in the Economic Times on 11th September 2023.
The role of women is sacrosanct for the growth and development of the MSME segment in India. The participation of women in Indian MSMEs has been considerably high in comparison to other sectors.
After the inception of the COVID-19 pandemic, the MSME segment in India suffered a crash in the supply chain. Several small-scale industries were not able to procure basic inputs and raw materials, majority of the MSMEs suffered from a capital crunch as most of the women entrepreneurs didn’t have a proper credit score to avail loan from a bank and other formal institution.
The pandemic has revealed many ruptures in the current system and it is imperative that we should learn the lessons that the pandemic has taught us so that we don’t repeat the same mistakes again. It is imperative to address the digital and financial divide in India as merely 32% of women own a mobile phone in India compared to 60% of men.
Digital payments are growing at an unprecedented pace. According to the National Payments Corporation of India (NPCI), UPI recorded over 7.82 billion transactions worth Rs 12.82 trillion in December 2022—a new record since it was launched in 2016. 44.63 crore Pradhan Mantri Jhan Dhan Yojana (PMJDY) accounts were opened, with deposits amounting to INR 158,713.30 crore, in seven years till 26th January 2022.
But even after these steps taken by the government, there is low usage of UPI among women (especially those women belonging to Tier 2 and Tier 3 cities). There is also a problem of account dormancy and zero-balance accounts among women, where the majority of accounts opened during the PMJDY are only being used to receive Direct Benefit Transfers from the government.
According to the white paper published by MicroSave Consulting and NPCI, there are three barriers that continue to inhibit the adoption and usage of digital payments in India:
1) Customer Level barriers: behavioral and structural barriers faced by customers that inhibit their adoption of digital payments
2) Provider level Barriers: Lack of customer-centric solutions for low- and middle-income (LMI) people in the country to adopt digital payments
3) Ecosystem level barriers: lack of frontend and backend systems to enable digital payments.
The women in tier 2 and tier 3 as well as the MSMEs majorly fall prey to the first two barriers (i.e., the Customer level barriers and Provider level barriers). The literacy rate among women and some pockets of urban areas is as low as 67.77% as compared to 84.11% in urban areas due to which there is a high level of apprehension and fearfulness among women in rural areas to make digital payments.
The reason for their apprehension is that they fear that they may send the money to the wrong person after which they will never be able to retrieve the money back. The majority of the women in tier 2 and tier 3 cities had also developed some degree of bias against digital payments because some of their family members and relatives had a bad first experience (when the family members made the transactions for the first time) because of which the women developed a perception that digital transactions are unsafe.
As mentioned at the beginning of the article, women’s participation in the MSMEs has been high in comparison to other sectors in India, however, most of the women employed in the MSMEs in the tier 2 and tier 3 cities, receive their monthly salary in cash which is another hindrance for lack of adoption of digital payments among women.
Building the overall financial and digital resilience of women provides a paramount substructure for the overall growth and development of the MSMEs which will bolster the overall boost of the village’s economic growth. A high degree of digital resilience of women will further boost the technological innovations in the field of finance to achieve Integrity, Inclusion, Innovation, Institutionalisation, and Internationalisation strengthen the digital payment ecosystem in India according to the Payment vision document of the RBI.
In order to achieve the payments vision of the RBI and increase the financial readiness of women we have to increase the Awareness, Accessibility, and Usage of digital payment services among the women.
To build awareness we have to rope in local bodies like panchayat workers, self-help groups, and other institutions like State Rural Livelihood Missions (SRLMs) so as to increase the awareness and importance of digital payments among women. The local NGOs and government can also collaborate with the micro-influencers in the local villages to increase the awareness of digital payments among women.
To increase the accessibility of UPI applications among women, the provider of the digital payment services should ensure a seamless and smooth onboarding experience for the women. The first few experiences of using the digital payments should provide a delightful experience to the women (who would be using UPI for the first time).
A significant number of fintech players are heavily dependent on the bank infrastructure because of this the banks are not able to process and handle the excess payment request demands from the customers. Heavy reliance on bank infrastructure is the primary reason why there are transaction failures while conducting a digital transaction.
There are increasing challenges for the fintech companies related to cyber security and data privacy as all the major fintech companies collect and store sensitive financial data because of this these companies are more vulnerable to any potential cyber-attack.
To enhance the usage of digital payment applications, the product developers of the applications should synthesize and harness customer-centricity tools to increase the usage of the UPI apps. Developing subtle nudges in the app and adopting a model like that of “BC Sakhis” by the fintech players in the local communities can provide assistance to women and increase the usage of digital financial services among women.
Financial inclusion is still an unaccomplished target, especially among women belonging to the lower and middle-income groups. There are not merely demand-side challenges but supply-side issues as well that abstain from the overall digital and financial ecosystem of the county and in the Amrit Kaal we should make sure that all the women in our country are financially included so that they can play an equitable role in the overall growth and development of India.
Artificial Intelligence (AI) has grown and transformed remarkably in recent years. AI’s proliferation in the payments industry will likely transform how we process payments in the digital economy. Currently, most payment solutions primarily cater to digitally savvy users who own smartphones and have Internet connectivity. This leaves out many underserved users who lack smartphone access and is, thus, not inclusive. This white paper, developed jointly with the National Payments Corporation of India (NPCI), highlights a solution to improve inclusivity and become a game changer in the payments space.
The white paper was first launched at the Global Fintech Fest in Mumbai, India, on 7th September 2023.
India’s female labour force participation rate (FLFPR) has increased marginally from 32.5% in 2020-21 to 32.8% in 2021-22. But is this pace fast enough? How can women’s participation in the labour force increase to match the global average of 47%?
While India continues to have one of the highest increasing GDP per capita growth at 6.3% in 2022 as compared to other South Asian counterparts, some neighbouring countries like Bhutan (53.8%) and Nepal (40%) have a higher female labour force participation rate as compared to India in 2022.
Women can have a tremendously positive impact on India’s economy. By 2025, if the FLFPR of women increases at the same rate as men, it can add USD 770 billion to India’s GDP. But how close are we to achieving this goal?
Policymakers have increasingly emphasised bringing women into the workforce through policies and programs to build their skills while addressing normative barriers that deter women from taking up jobs. Some barriers result from higher dropout rates among girls, limited job opportunities, and wage discrimination. Moreover, social norms around mobility, decision-making, and household responsibilities can also hinder the extent to which women seek employment in the first place. And after childbirth, re-entering the workforce becomes even harder.
Oxfam India research suggests that while similar norms persist in other South Asian countries, there are far more barriers that hinder women going to work in India. A pertinent example is the correlation between increased development rates and higher household income in urban Indian settings, which paradoxically impacts a woman’s ability to pursue work opportunities outside her home. This trend is fueled by societal preferences for women to remain in domestic roles, particularly as their status advances. Alongside challenges related to safety and mobility, additional factors such as the limited availability of white-collar positions for the growing number of educated women contribute to these barriers. In contrast, countries like Bangladesh offer more formal avenues for women’s employment, particularly in expanding international trade sectors
Moreover, the informal nature of many Indian industries, especially manufacturing, inhibits women’s participation in the burgeoning job market, leading to a predominantly male-dominated environment. A significant factor contributing to this situation is that women in India often experience their first pregnancy before the age of 22, assuming primary responsibilities for childcare, especially in urban areas. Consequently, women are often forced to leave their jobs, opt out of the workforce, or navigate the challenge of providing unsupervised care for their children. This emphasis on early years childcare supersedes career pursuits, and urban women, distinct from their rural counterparts, lack the robust community support systems that enable them to balance work and child raising responsibilities effectively.
While women have access to institutional support, it remains limited to rural programs for pregnant women and post-childbirth care. The Pradhan Mantri Matru Vandana Yojana (PMMVY) is a wage compensation program that provides financial support to pregnant and lactating women to improve maternal and child health. Meanwhile, the Janani Suraksha Yojana (JSY) offers financial support and resources to pregnant women for safe delivery and post-delivery care.
Additionally, India has policies that mandate employers to provide on-site childcare facilities under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS). The country also has several policies that authorise childcare for organisations with 50 or more employees. However, most such provisions focus on women in rural areas. Inadequate support in semi-urban and urban spaces remains a missing link for women when they attempt to reenter the workforce post-childbirth.
So, what is the way forward to galvanise women’s labour force participation? One way is to formalize the care economy by investing in the childcare system. Although crèches under the National Creche Scheme understandably reduced during COVID-19, from 18,000+ in 2017-18 to 6,000+ in 2020, available data does not explain if these numbers have shifted between 2021-2023. Increasing crèches at scale will require more childcare professionals, teachers, healthcare professionals, and other associated people. Moreover, if the number of crèches increases, it would enable convergence between upskilling women through government programs, such as the Swarna Jayanti Shahari Rozgar Yojana (SJSRY), which supports women’s self-employment.
Government policies can prioritise encouraging initiatives, such as starting local childcare crèches. Upskilling programs, such as the National Urban Livelihoods Mission, can train women in specific areas, such as health, nutrition, and education, to evolve them as childcare professionals as a career starting point. India can take note of countries, such as Mexico, that run large-scale subsidised childcare programs to encourage women to return to work.
Another approach would be for the government to incentivise private firms that employ more women with tax rebates and other forms of recognition. Some industry players in the manufacturing sector have 100% women employees. Female employment enables government involvement while allowing industries to direct their corporate social responsibility ventures to benefit their output and productivity rates.
Investing in the childcare ecosystem, building engagements with the private sector and civil society, and creating policies that enable women’s participation in the formal economy can help overcome existing normative barriers and limited economic opportunities. Together, these interventions can chart new heights for women and build milestones for India’s growth story.
Digital payments in India grew phenomenally in the past decade and are expected to rise over USD 10 trillion by 2026. The digitization of bill payments and collections will comprise a significant part of this growth while it improves access to financial services.
BBPS intends to use its standardized, interoperable, and secure payment solution. It, thus, remains at the core of India’s collections ecosystem. It seeks to become the country’s de facto collections platform. In this new white paper, MSC traces BBPS’s journey and examines its potential in the next decade.
The publication discusses lessons and insights from MSC’s study to decode the extent and exposure of financial fraud among digital financial services’ (DFS) customers. It summarizes major trends in digital fraud, implications for various demographic segments, and the interplay between technology, awareness, and user vulnerabilities. The publication highlights vital lessons for policymakers to design proactive measures, streamline complaint resolution systems, and integrate technology with grassroots outreach for effective fraud prevention. It builds on various stakeholders’ experiences, from victims to financial service providers, and gives a holistic view of the digital financial landscape and its challenges.
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