Understanding the Financial Inclusion Gender Gap
On International Women’s Day, at The Business of Inclusion: Global Prosperity through Women and Girls Empowerment, I had the opportunity to participate in a lively panel discussion on ways to close the gender gap in financial inclusion globally. I was joined by two of our close partners and collaborators, JP Morgan Foundation and Citi Foundation, as well as BBVA Foundation, a microfinance investor and operator focused on Latin America, and McGraw Hill Finance, a content and analytics company serving the capital and commodity markets.
My conversations focused on the tools and tactics that help build inclusive solutions that create opportunities for women and girls around the world. Gender equality is good business – it is estimated that advancing women’s equality can add $12 trillion to the global economy, but if the rate of change continues as it is today, it will take over 100 years for the inequality gap to close.
All of the panelists work in financial inclusion in some form, and our combined expertise resulted in a nuanced conversation on both the genesis of the persistent financial inclusion gender gap and ways to address some of the challenges.
Integrating Client Education
Financial education should be delivered in an integrated way – that is, bundled with the actual financial services and products being offered. BBVA Foundation does this in their microfinance institutions (MFIs) in Latin America and further leverages its financial services channels as a conduit to delivering other critical services, such as healthcare. Accion recognizes the importance of financial literacy in a number of ways, both for the purposes of consumer protection and asset building. Our “trainer of trainers” program, MoneyPlan, helps low-income individuals in India learn about the tools they need to grow financially and ways in which they can avoid over-indebtedness and other risks.
Additionally, Accion’s partner IFMR Rural Channels serves “remote rural” clients in India with a “wealth management” approach. IFMR wealth managers go house-by-house throughout a village to first understand clients’ holistic financial situations. Only after assessing their unique needs to they offer products and services that fit individual needs, such as savings, insurance, pension plans, and others. All the while, clients learn from the manager about how to best use the services that best fit her life circumstances.
Restrictive regulation often limits the capital available to financial intermediaries, which are in turn unable to reach more clients and work with clients perceived as more risky. Restrictive regulations can include limited access to capital, expansion constraints, capped interest rates, or deposit minimums.
Often, women clients exist at an institution’s “last mile” – they are often harder to reach than male clients, both literally and figuratively. Ironically, women are often the very clients MFIs need to reach, since they are often shut out of the formal economy and are running small businesses from their homes. Those businesses exist to help families out of poverty, and the profits are likely invested in children’s’ education or the business itself. If, due to systemic challenges, MFIs are restricted in expanding access, then this much-needed funding for growth will not be available in the very places where it is needed most.
Making Data Available
Many of the world’s financially excluded people and their businesses don’t have traditional credit histories or formal transaction date. Within the world of finance they are known as “thin file” customers. As a result, they are seen as high-risk clients. Luckily, many fintech companies are focused on creative ways around this obstacle, such as Konfío in Mexico, which uses alternative data to predict credit-worthiness.
The US financial services industry, however, has shown some reluctance since the 2007 financial crisis to share data that could be critical to understanding the credit needs and potential repayment rates for typically underserved communities in the US. As an underserved population (in the US and elsewhere), this disproportionately affects women and women-owned businesses. Greater understanding of women’s most basic financial needs through access to appropriate data could be essential to providing women and their businesses with the financial products central to their success.
Opportunities and Challenges of Technology
Technology can be both an opportunity and a challenge when it comes to bridging the financial inclusion gender gap. The use of mobile technology in financial services, for example, has the potential to help clients “leapfrog” the need to visit physical locations, but is not a panacea. In some cases, the clients in question are not yet comfortable using phones to transact and still want rely on the reliable model of in-person transactions with people they trust when dealing with their money.
In some nascent markets, such as Myanmar, mobile phone penetration rates have grown astronomically in a very short period of time (SIM cards now cost $1.50 – four years ago they were over $2,000), making the country seemingly ripe for technology leapfrogging. Yet, women still gather weekly in groups to meet with loan officers, discuss their businesses and receive disbursements, and pay back loans of $50 to $100. Are these women ready to leave their support groups and loan officers in favor of transacting over their phones? While technology and digitization can be a way forward, the actual adoption of technology on a large scale has not yet happened in some places and models have not yet been proven.
In China, peer-to-peer lending (P2P) has grown exponentially since 2012, helping address a huge lending gap to individuals and small businesses. Unfortunately, P2P has since suffered from issues of fraud and is viewed as a potential systemic risk to the economy if China’s growth continues to slow down and people are unable to pay back their loans. Questions remain, however, on how fast can societies adapt, which models will succeed, and for some, is there a credible substitute for the human side of banking? Which technologies and business models will withstand credit cycles, be adapted by clients, and help reach the remaining 2 billion adults who do not have access to financial services, 55% of whom are women?
All Clients Are Not the Same
Women are widely viewed as credit-worthy borrowers – as microfinance flourished worldwide over the last 30 years, women have generally proven to be better borrowers than men. In this context, “better borrowers” means that women are more likely to repay loans on time and use the money for productive purposes, such as investing in their businesses, their children’s education, and the family’s healthcare.
However, women are also seen as risk averse, and perhaps don’t borrow enough to maximize growth for their business, increase returns, and build sustainable wealth. In many poor countries, women continue to pay the same interest rates as less creditworthy borrowers. In the US, we offer the best credit clients better pricing – in effect, passing along to the client some of the savings financial services companies gain in credit costs. This is the beauty of an effective, data driven bank – unlike manufacturing companies that sell widgets, pricing can be tailored to client quality.
What if MFIs and other lending institutions were able to do the same thing in emerging markets? The best quality borrowers would have access to more capital at better rates, and lending institutions could retain these clients by recognizing their value. On the other end of the spectrum, variable pricing would allow lending institutions to offset the real or perceived risk of “thin file” clients with higher pricing.
Driving Financial Inclusion Forward
It remains to be seen how today’s financial inclusion efforts will drive forward the actions and innovation needed to provide women with the financial services they need. The financial inclusion gender gap is about more than clients for MFIs and organizations like Accion. It is a fundamental discussion on opportunity and inclusiveness. Another 100 years to close the gap is far too long and far too costly for the world economy. Integrating education, influencing regulation, tapping into technology and serving women where and how they need to be served are just a few of the initiatives that will help make full financial inclusion a reality.