In the last couple of weeks, India has seen an unprecedented rise in cash deposits and people thronging to their banks to transact. The demonetization of high denomination currency by the government has ignited what is expected to be a much-awaited migration from cash to digital payments and a significant move with widespread impact on how people in India store, pay, receive, and save their money. It is also a tremendous opportunity for the financial sector to seize the momentum towards formalization of financial services and ensure that there is lasting behavior change among their clients, which will in turn result in sustained economic benefits for all of us.
The challenge ahead for financial service providers is to plan deliberate efforts to make marginalized customer segments comfortable with cashless methods of managing their finances. When it comes to women — one of the largest unbanked segments in India — there has been progress in closing the financial gender gap, but much more needs to be done. Current statistics sizing the issue are sobering: One out of every four financially excluded women in the world is Indian, which adds up to 280 million women — or 62 percent of the country’s female population — who are not an active user of the banking system and the many benefits it provides.
“A Buck Short”, a recent report on this topic sponsored by Omidyar Network, found out that, interestingly, financial institutions today do not appear to intentionally discriminate or exclude potential female clients. Rather, small barriers and cultural cues have come together to make formal finance unappealing and impractical for many of them. For instance, most banks insist on a co-borrower or guarantor when the borrower is a woman. Nearly 80 percent of women in India do not have a regular source of income but most of them are recipients of remittances and/or are managers of the household finances. Today’s formal financial products do not meet or are not perceived to meet the needs of such women.
This issue is not limited to low-income women. Financial exclusion in India persists across income and education levels, with 50 percent of the women earning more than Rs. 5,000 per month and 45 percent of women with a college education also being excluded from the formal financial system. Furthermore, the financial gender gap mirrors the broader digital divide that plagues our country. While there are more than a billion mobile connections in India, 250 million women in India do not own a mobile phone and less than 3 percent own a smartphone.
Changing this reality requires in-depth understanding of women’s behaviors when it comes to their finances and thoughtful product design to address their real needs. That doesn’t mean reinventing the wheel or launching “pink financial products.” Small tweaks to existing offerings can make a big difference, like adding flexible micro-financing to accounts to help women cover unexpected expenses and emergencies on their day-to-day management of the household finances — a common need, as women are generally tasked with backstopping and stretching the family budget; Or easier requirements to reactivate dormant accounts, as women go through more life-altering changes through their journeys than men and tend to frequently move in and out of the workforce.
Employing the right channels to reach women is also key. Women’s networks tend to be more horizontal, with their social circles being made up of female extended family members and women of similar socio-economic standing, so offering new products and delivering digital literacy tools through their social groups can encourage greater adoption and usage. While women draw great comfort from group based savings and lending products, encouraging them to use mobile phones to manage their finances can also provide easy access and privacy, high-valued attributes in financial products per our research. Ability to check their balance from the confines of their home and at will could assure them of the safety and liquidity of their money. In addition, their economic geographies tend to be more limited than men’s, with most of their expenses happening within their communities. Providing easy access points around schools, hospitals, and other places they visit often would entice them to become active users.
Understanding the barriers holding women back and designing financial products that help address them is not only the right thing to do, but also a good business opportunity for financial services providers. There is great momentum toward the digitization and formalization of our country’s economy. Encouragement, foresight, and effective communication from financial institutions toward women at this moment could turn them into a most valued customer segment.