World Bank’s recent evidence and practice note on what works to support women-led businesses emphasizes the need to better target support to growth-oriented women entrepreneurs, consider women’s differentiated needs, and provide a package of support to overcome multiple constraints. MSC’s previous study with the Women Entrepreneurship Platform (WEP) found that women entrepreneurs require support in six critical ecosystem areas to develop successful businesses. One of these critical areas is entrepreneurial mentorship. The explosive growth of the Indian startup ecosystem has increased recognition of mentorship as an effective entrepreneurship development tool.
However, empirical research that examines its impact is yet to be undertaken. This study—Mentorship for Women Entrepreneurs—A Highway to Growth,” attempts to understand women entrepreneurs’ awareness, access, experience, and perceptions of the value derived from mentorship. In the study, we interviewed mentors across industries in India to understand their motivations and mentorship experience. This was complemented by a review of global evidence on the subject and an analysis of the country’s mentorship landscape.
Watch this video to get the key insights from the report.
In our previous blog, we discussed the various factors that led to the rise of digital payments in the country, and also highlighted the evolutionary measures that will help us unlock the USD 10 trillion opportunity. In this blog, we highlight a few revolutionary initiatives that have bridged the gap further for the historic transformation of India’s digital financial services space.
Revolutionary initiatives
Central Bank Digital Currency (e₹)
The RBI’s Central Bank Digital Currency (CBDC) is a significant step in the evolution of currency that can change the way money works. The RBI defines CBDC as the legal tender issued by a central bank in a digital form akin to sovereign paper currency. CBDCs are exchangeable at par with the existing currency and shall be accepted as a medium of payment, legal tender, and a safe store of value.
The RBI launched CBDC’s first pilot in the retail segment in December 2022, known as digital Rupee-Retail (e₹-R), within a closed user group comprising participating customers and merchants. Mumbai, New Delhi, Bengaluru, and Bhubaneswar. State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank issue e₹-R in the form of a digital token representing legal tender in the same denominations that paper currency and coins are currently issued.
Users can make P2P and P2M transactions with e₹-R through a digital wallet the participating banks offer and stored on mobile phones or devices. As in the case of cash, e₹-R will not earn any interest and will be converted to other forms of money, such as bank deposits. Through this product, CBDC expects to reduce operational costs involved in physical cash management, foster financial inclusion, and bring resilience, efficiency, and innovation to the payments system. The use of e₹-R will also add efficiency to the settlement system, boost innovation in the cross-border payments space, and provide the public with use cases private virtual currencies provide without the associated risks. CBDC’s offline functionality would also benefit users in remote locations with limited electricity or mobile networks.
Account aggregator framework
India’s account aggregator (AA) framework is a consent-based system under IndiaStack that enables data sharing across financial institutions. In this case, account aggregators will serve as consent managers who permit an easy flow of financial data by serving as a conduit between customers’ financial information providers and users. The AA framework enables users to link all financial accounts securely to one data handle and provide consent to share the data with other financial institutions. Currently, 56 banks, FinTechs, NBFCs, and ~1.1 billion customer accounts are live on the AA system.
The AA framework will democratize financial services through easy, secure, and consent-based data transfer, give customers more control over their data, and reduce processing costs for banks and NBFCs through better access to data. More recently, the RBI included the Goods and Services Tax Network (GSTN) in the AA network as a financial information provider to facilitate cash flow-based lending to the micro, small, and medium enterprises that lack credit history based on their GSTIN records.
However, we are yet to learn how it will impact low and middle-income segments in rural markets that have limited or no digital footprint with low financial literacy. Our blog on the DEPA framework discusses one of AA’s most highlighted use cases—lending.
Open Network for Digital Commerce (ONDC)
India has the third-largest online shopper base globally, with 140 million e-retail shoppers. However, this number comprises only 18% of the country’s 761 million mobile internet users. On the supply side, around 12 million kiranas, which are hyperlocal neighborhood provision stores ubiquitous across the country, account for 80% of the retail sector in India. Among them, 90% are unorganized or self-organized, and most remain digitally excluded. Moreover, ~63 million MSMEs in the country can potentially unlock innovation and scale their operations through digital commerce. ONDC with OCEN can potentially support the growth of these kiranas and MSMEs and many customers by building a data trail, increasing outreach, and providing access to credit.
ONDC is an initiative to promote open networks for exchanging goods and services over digital or electronic networks at a population scale. The neutral platform is designed to set protocols for cataloging, vendor matching, and price discovery on an open-source basis. It enables sellers and buyers to be digitally visible and transact through an open network, regardless of the platform or application they use. Adding on the OCEN layer, ONDC will enable customers and businesses to borrow through any of these e-commerce or other apps. This will involve a standardized process with APIs for every stage of the customer lending lifecycle to support the integration of lenders with other digital platforms, including e-commerce.
Conclusion
These initiatives can potentially drive India’s digital payments growth and unlock the USD-10 trillion opportunity by 2026. Embedded payments via 5G and the Internet of Things (IoT) will provide further impetus. Building customer trust through better fraud management and easy digital onboarding remains imperative. So does improving economics for payment players.
Entities such as the RBI, NPCI, and FinTechs will prove crucial to facilitating this growth. How these initiatives will affect the digital divide and the low and middle-income segments, especially vulnerable communities, remain to be seen. Regulators and service providers can address some of these concerns by enabling customer-centric interfaces, agent-assisted support, last-mile distribution networks, and robust grievance resolution mechanisms.
The digital payments ecosystem in India has emerged as a silver lining as the COVID-19 pandemic seems to be receding. The country’s digital payments landscape has transformed dramatically in the past five years. While Unified Payments Interface (UPI) hit record-high numbers, the Aadhaar-enabled Payment System (AePS) transformed how beneficiaries access subsidies. Meanwhile, Bharat Bill Pay System (BBPS) consolidated the recurring bill payments industry under one payment system, and QR codes continued to drive the merchant acceptance network nationwide.
As a result, India clocked ~197 million daily digital transactions in FY 2021–2022. The Reserve Bank of India’s (RBI) digital payments index, which has 2018 as the base year at 100, has risen to 377.46 in March 2022. Visit the PIN Rails site, which features a dashboard that tracks the evolution of India’s payments system.
Several factors led to this transformation including improvements in payments infrastructure, information and communications technology disruptions, a responsive regulatory framework, a conducive policy environment, and a greater focus on customer-centricity. Moreover, black swan events, such as demonetization and the COVID-19 pandemic, have further accelerated India’s digital payments journey by spurring a behavioral shift among the masses toward digital payments. We have discussed these in detail in our report on “How digital payments drive financial inclusion in India” and blogs on “The evolution of payments in India—the state of play and looking ahead.”
Unlocking the threefold growth and USD-10-trillion opportunity
Digital payments in India are about to reach an inflection point. We expect a 3X growth in value to USD 10 trillion by 2026, with every two out of three payments being non-cash. However, unlocking this opportunity requires the introduction of several evolutionary and revolutionary initiatives along with improvements in acceptance infrastructure.
Using tech to leapfrog to unique users and acceptance infrastructure
Access to content in local languages and the rise in video streaming apps continue to drive internet usage in India’s rural areas. The penetration of smartphones among Indians has increased from 26% in 2014 to 65% in 2022. The growth of 4G services has also added many first-time users. Rural India saw a 45% increase in new internet users since 2019. On average, a wireless internet subscriber in India consumes 14.97 GB per month at INR 9.91 (~USD 0.13) per GB, which remains the cheapest internet worldwide.
Furthermore, QR codes have fast-tracked the expansion of merchant acceptance of digital payments as they are easy to use and involve low setup and maintenance costs. More than 30 million merchants now accept QR code-based payments, a 12x increase from five years ago. QR code acceptance has driven the share of merchant payments to overall UPI transaction volumes from ~12% in 2018 to ~46% in 2023.
We expect new generations of mobile-first internet users to try digital payments, spurred by comprehensive 4G coverage, stable and low-cost internet access, and affordable smartphones. These new users will add to the existing base of approximately 845 million registered smartphone users[1] and 761 million mobile internet users. While Tier I and Tier II locations (typically locations that are more developed and have a higher population density) in India will continue to drive usage, we expect the subsequent wave of growth in new users and merchants from Tier III to Tier IV regions in India. Policy initiatives, such as the Payments Infrastructure Development Fund (PIDF) and waiver of merchant discount rate (MDR) in UPI and RuPay debit cards, are designed to deploy QR codes and integrated POS solutions rapidly. The use of QR codes and POS solutions will onboard underpenetrated merchant segments.
Evolutionary initiatives
UPI 123Pay, Lite, and AutoPay
UPI saw 8.69 billion transactions amounting to INR 14 trillion (~USD 172.43 billion) in March 2023. It has emerged as the preferred choice of payment for digitally savvy Indians. Transactions conducted through UPI also create digital data trails for users. However, UPI’s penetration is limited mainly to the urban segments that enjoy high smartphone and mobile internet usage. UPI 123Pay and UPI Lite will further expand UPI’s reach and bring convenience for customers to make voice-based payments with ease and overcome barriers of age, literacy, disability, and lack of internet connectivity or smartphones. These offline payment innovations offer massive growth opportunities among the ~400 million users of feature phones that are inexpensive and highly scalable for adoption.
Furthermore, UPI AutoPay, offers an opportunity to 64 million borrowers of microfinance institutions and 6.74 million SHG members, typically women from low-income households in rural locations, to repay loan installments digitally. Customers can enable an e-mandate using any UPI application for recurring payments and pause and start their mandates as per their needs of payment tenure and timelines.
e-RUPI
e-RUPI, a one-time closed-loop payment mechanism that currently finds use among the beneficiaries of specific government programs. e-RUPI takes the form of a person- and purpose-specific cashless e-voucher designed to ensure that the stored money value reaches its intended beneficiary. These vouchers can only be used for the specific purpose for which it was designed at a merchant outlet. The beneficiaries do not need a bank account, card, digital payments app, or Internet banking access, as e-RUPI transactions can occur through a simple SMS or QR code.
e-RUPI ensures an easy, contactless, two-step payment and redemption process that does not require users to share personal details. It is also operable on feature phones and saves the hassle of handling cash or cards, which empowers beneficiaries with limited digital and financial readiness and ability. The National Health Authority, National Health Mission, and state governments of Karnataka, Madhya Pradesh, Odisha, Rajasthan, and Tripura, along with 21 banks, are live on the e-RUPI API gateway platform. These partners use e-RUPI to facilitate benefits under Ayushman Bharat—the country’s national health insurance coverage program, cashless scholarship fee payment to students, and seed and agriculture equipment distribution. e-RUPI can effectively aid beneficiaries and the government in administering G2P payments at scale.
While these evolutionary initiatives intend to facilitate access to and usage of digital payments to the unserved and the underserved segments, their uptake will depend on how effectively are the current financial needs of these segments are met and the use-cases offered. In the next blog, we highlight a slew of revolutionary initiatives led by India’s central bank and regulator to promote wide-spread inclusion by democratizing financial services for the masses.
[1] Multiple SIM ownership means that this does not indicate unique users, and also includes smart-feature phone users
Janet and Rebecca count among the 2.7 million women entrepreneurs who work across Kenya. Janet is an open-air market trader (OAT) who deals in secondhand clothes in Gikomba, one of the country’s largest open-air markets in Nairobi. Rebecca is a cross-border trader (CBT) who operates across the Kenya-Uganda border daily. She supplies agricultural products to customers in the border town of Busia. Both women share several commonalities—they have regular customers, prefer cash payments, rely on informal financial services, and experience severe income volatility. Rebecca and other CBTs contribute to 30-40% of Africa’s regional trade, which is informal and women-led.
The cost and complexity to obtain permits, licenses, and registration push traders like Janet and Rebecca to operate informally. This exposes them to harassment from local authorities. Moreover, CBTs also face risks related to exchange when they manage multiple currencies. The lack of secure options to make cross-border payments exposes them to fraud and theft. As a result, multiple constraints prevent these traders from being able to use a range of digital financial services effectively.
Despite their contribution to economic development, we know very little about the financial lives of women OATs and CBTs in Kenya. This blog unpacks the financial lives of women OATs and CBTs.
MSC conducted financial diaries research with 100 traders, both OATs and CBTs, between April 2022 and June 2023. The research sought to unlock the economic and financial realities of women OATs and CBTs in Kenya. During this period, traders kept daily written records of their total income, personal and business expenses, savings, and loans. Field researchers visited these diarists every two weeks, performed quality checks, and digitized the records for analysis. Three months after the research was completed, we found that 49% of the traders continued to keep such records. This finding reinforces the idea that diaries can improve financial habits in low-income settings.
Our analysis led to several interesting insights. We have highlighted some below:
Business volatility
On average, women OATs, such as Janet, generated 31% more revenue than their CBT counterparts. However, their expenses are similar. OATs gained huge revenues in December due to the festive period, but CBTs did not. In contrast, CBTs experienced a slump in business activity, aggravated by the country’s worsening economic conditions. Other factors that explain the income and expense variation include geography, seasonality, business size, type of business, and captive customer base.
Variations in business income and expenses lead to higher net income for women OATs than women CBTs. Moreover, the decreasing trend in the net income for Janet and other OATs is significant based on the Mann-Kendall Test but not for women CBTs.
Janet and other OATs also cite various challenges that limit their business expansion, which are linked to the worsening economic conditions. These challenges include price volatility due to inflation, insufficient credit, and low customer volumes.
Rebecca and other CBTs struggle due to competition from men who are more established, supply-side shortages, price instability due to exchange rate volatility, income seasonality, insufficient credit, and inflation. They also face strict border restrictions, requests for bribes, and harassment by public officials at the border checkpoints.
The Kenyan Shilling has depreciated by 15% to the US dollar in the past six months. This is an example of exchange rate volatility, which makes it difficult for Rebecca and other CBTs to set suitable prices for their goods. Given their small size, CBTs cannot hold sufficient foreign currency to cushion themselves against exchange rate loss. CBTs rely on customs offices, informal money changers, and forex bureaus, which are unlikely to offer competitive rates due to the exchange of low amounts.
Savings behavior
Janet, Rebecca, and other traders heavily rely on informal savings mechanisms, such as chamas, to meet financing gaps. Chamas are informal savings groups where the members collectively pool their resources and rotate funds among the group. They must hold liquid assets, mostly cash and mobile money, to meet their personal and business needs. This discourages long-term savings or investments in other asset classes, such as fixed savings accounts, money market accounts, and treasury bills. This limits their growth potential.
Women OATs and CBTs face a high temptation to spend cash. So, they adopt various self-imposed measures to ensure financial discipline. They lock their savings with mobile money operators to prevent premature withdrawal, save via their chamas, and repay loans whenever they have extra cash.
Access to credit
Liquidity is a major challenge. Janet, Rebecca, and others access credit from formal and informal sources. Most prefer informal sources for their accessibility, convenience, and affordability.
For example, women OATs and CBTs borrow between USD 14-28 from friends and family. They repay these short-term advances on the same day at zero interest. Beyond friends and family, other sources of informal loans include women’s groups that charge interest rates of 10-15% per month (10% being the mode) and moneylenders who charge as much as 15-20% per week.
While women OATs rarely sell items on credit, some women CBTs extend credit to trusted customers. However, they face additional liquidity challenges when customers fail to repay on time.
Use of digital channels
The use of digital channels has observed slow growth, driven mainly by mobile money. In the first six months of this year, Janet and other women OATs received payments for goods and services, primarily in cash. The income received via digital channels stood between 2%-9% (average 4%).
Between May and June 2023, the share of income from digital channels tripled from 3% to 9% for OATs. The growing trend in which financial service providers (mainly banks and mobile network operators) actively onboarded them onto merchant payment codes supported this growth. Alongside their simplicity, merchant payment codes offer speed, security, and convenience. This permits OATs more time to serve customers than they have to spend when they count money and refund change.
Women CBTs, such as Janet’s share of income through digital channels, are higher than that of women OATs—these range between 10% and 12% (average 11%). CBTs rely on digital channels for cross-border receipts and payments, mostly via mobile money.
Market segmentation
Women OATs and CBTs are not a homogenous group. We observed at least three personas that fall within the agile segment. They learn quickly, transact across multiple channels, have bank accounts, and earn more than USD 84 monthly. Following is a brief description of these three personas:
Hustlers (28% of our diarists), such as Janet and Rebecca, earn USD 251 monthly net profit on average and are relatively new to business. They struggle to meet ends and need credit to balance their household and business finances. They use the credit mostly for consumption smoothing.
Strivers (33% of our diarists) earn an average of USD 380 monthly net profit. They are experienced entrepreneurs. They borrow to grow their businesses and smooth personal consumption.
Thrivers (39% of our diarists) earn an average of USD 669 monthly net profit. They are experienced entrepreneurs. Their businesses are stable, and they generate sufficient revenues to meet their personal and business goals. They borrow to expand their businesses.
Design products that allow savings automation and entice customers toward goal-based savings (For example, through lock-in features and higher interest rates, among others);
Build solutions that allow customers to track their finances and provide linkages to formal borrowing;
Generate data trails based on repayment activity and empower borrowers to graduate from Hustlers to Thrivers;
Build platforms that provide access to financial products, exchange rate information, and support timely settlement of cross-border transactions.
We cannot understate how critical informal traders, such as Janet, Rebecca, and others, are to drive Africa’s trade. However, financing their businesses at scale requires that providers offer viable financial solutions. These solutions should address liquidity challenges, encourage long-term savings, support customer graduation, and facilitate cross-border payments.
MSC partnered with SEWA Bharat to research women entrepreneurs’ credit journey and experiences. The report “Women and Credit: Access to Credit for Micro and Small Female Entrepreneurs in India” delves into micro and small women entrepreneurs’ credit journey and explores demand and supply-side factors. The study shares insights on credit requirements, experiences, challenges, and credit success determinants for individual and collective women-led enterprises. This report also identifies five key personas of female borrowers. It shares the supply-side experiences of bankers and other organizations who directly or indirectly lend to women entrepreneurs. It shares some novel methods and good practices supply-side stakeholders implement to mitigate and distribute credit risk. Ultimately, it provides key recommendations to enhance access to credit for women entrepreneurs.
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.
