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Women are better borrowers than men.

Dec-16-2022


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If asked to imagine businesspersons, entrepreneurs, self-employed individuals, most of us are likely to picture a man.  However, the reality is more balanced.  Just in India, we have over 20% of MSMEs owned and run by women.  The past decade and a half has also been instrumental in creating financial parity amongst genders through the creation of bank accounts and credit extension focused on women; creating millions of thriving women owned businesses.

Credit or loans enable businesses to grow, create greater economic value, jobs and of course, generate returns for the credit provider as well. In this context, is there a difference between how men and women access and repay loans? The answer is yes. 

When it comes to credit extension to women, a global success story has been that of microfinance wherein small loans (going up in size over time) are extended to women basis social underwriting.  In India, as with other types of loans, microfinance loans to women are also regulated by the RBI with over 7 Cr. women borrowers in the formal credit system. A quick analysis of last 10 years of data for this sector shows remarkably low default rates and strong overall growth.

So, does this indicate that women are better borrowers?

Let’s explore some data and factors at play.

Access to credit is has improved significantly

Formal financial inclusion of women has been a long journey.  In the earlier years, it is uncommon for women business owners to even consider seeking loans for growth due to external difficulties and social or family discouragement.

Banks initially refused to give loans to small businesses especially when it came to women entrepreneurs. In fact, surveys show that rejection rates for women are 2.5x times of men. 

This in turn has turned out to be a major disadvantage for the banks as the small financial companies have started supporting and providing loans to women borrowers, particularly those belonging to the rural areas.

It is interesting to note that women borrowers have increased at a compound annual growth rate (CAGR) of 19 per cent between 2016 and 2021, compared to a CAGR of 14% for men during the same period. CIBIL data also suggests that the share of women borrowers has increased to 29 per cent in 2021, which is up from 25 per cent as was recorded in 2016.

So, are women better borrowers?

G.R. Chintala, the chairman of India’s National Bank for Agriculture and Rural Development (NABARD), has rightly said in an interview:

“Women are the best borrowers, and this is proven”

The claim is supported by the fact - women possess higher credit consciousness and better credit scores as compared to their male peers.

Over the last two years, after the Covid-19 pandemic had struck the globe, people have better understood the importance of being financially independent, especially the women. Since then, there has been significant growth in the number of women borrowers.

“Women on average have higher CIBIL scores than men.”

More women and bankers now realize that credit can be an important part of building strong financial holdings, empowering their business or even enhancing the lifestyle for themselves and their families. Further, their contribution towards financial system is increasing, thus making them less dependent on men.

Following are some factors as to why women are considered to be better borrowers than men.

1. Women have lesser default rates in home loans

Approximately 29 per cent of home loans in India are availed by women according to a study held in December 2019. Although, the share for personal loan was about 15 per cent by women borrowers. 

Below mentioned is a small distribution of home loans taken up by 6 different groups according to Home Mortgage Disclosure Act (HMDA).

Years

Female

Only

Male

Only

Male-

Female

Female-

Male

Female-female

Male-male

2004-07

23.81

30.85

36.49

6.83

0.91

1.11

2008-10

19.65

26.24

44.42

7.57

0.96

1.15

2011-14

19.47

27.89

43.33

7.41

0.89

1.00

Total

21.46

28.89

40.48

7.18

0.91

1.08

The table above highlights the percentage of home loans being availed on gender basis. Either the loan is entirely taken by female or male or combined together.

For understanding purpose, the home loan is divided into three sub periods in order to demonstrate how these numbers vary with time.  In the early 20’s due to financial crisis, there was an increase in the number of borrowers and as the years passed by, this number declined, be it male or female. This was due to females trying to be more independent, increasing the credit source of the family.

Through this, it clearly signifies that the percentage difference between male and female borrowers is very less, indicating that women of today’s era are becoming self-sufficient.

Studies and reports suggest that women are better at repaying their loan on time and are at a less default rate than men. Women are comparatively at a lower credit risk rate than men.

According to the credit bureau, women are a safer bet for lenders as credit consciousness has increased in the past couple of decades. For home loans, the delinquency of women borrowers was recorded at 0.63% which is 15 basis points lower than the delinquency of their male counterparts. 

This significantly shows a good sign of keeping a healthy credit source. However, this default rate will further reduce by timely payment of EMIs, credit cards and constantly monitoring on the billing cycle.

The other option to reduce the delinquency rate of repaying loans is that women are now making the most use of the opportunity by turning to banks, micro-finance companies and NBFCs for loans.

2. Self monitoring among women is better than men

India is a diverse country, famous for its festivals and food. It also exhibits a variety of credit behaviors across different states. 

As the number of women borrowers has grown, self-monitoring - i.e. assessing one's credit score has increased too. 

A study conducted by TransUnion Cibil suggested that the self-monitoring aspect amongst women rose by 62% between 2018 and 2019. Notably, this was twice the rate of self-monitoring men. 

Further, women in the southern part of India, are more credit conscious as compared to women in the western and northern regions. 

Among the self-monitoring women, 56% of them belonged to states of Maharashtra, Karnataka, Tamil Nadu, Delhi and Telangana. 

Similarly, the states of Tamil Nadu, Maharashtra, Karnataka, and Telangana contributed to a magnificent 38.6 per cent towards total personal loan sought by women.

The major reason behind this was that they have learnt the tricks of the business and trade by escaping defaults and planning their credit well. This is a proof that women have become more credit conscious and are also prepared financially.

3. Women are conservative in their business spending

As compared to men, women are very cautious or rather say conservative in their spending. They are habitual to plan everything strategically, hence this includes investment too.

Let’s take for an example, Murtadho, the director of Karya Usaha Mandiri, a construction company in Indonesia, has said in an interview that the women borrowers borrow the loan in an amount that they would be able to repay and not based on how much they need. This, he insists, was his key observation with women clients he interacted with, in the real estate industry.

4. Social and self pressure for responsible repayments  if not paid on time

Sugeng Priyono, the operation manager of Komida, cooperative lending organization in Indonesia, says that  “the women usually feel guilty if their family or friends find out that they have not returned the loan on time.” 

As compared to men, women feel a greater need to be a good borrower to avoid criticism.

 

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