A new study by the Goa Institute of Management (GIM) has spotlighted a continuing and concerning gap in India’s entrepreneurial landscape: women business owners are less likely than men to successfully secure formal loans from banks and financial institutions. Despite a surge in women-led startups and enterprises, structural barriers and cultural biases continue to hinder equal financial access, limiting the potential of women entrepreneurs to scale their businesses and contribute fully to the economy.
Key Findings: Gender Gap in Formal Credit
The GIM research, published in the journal Applied Economics, analyzed data from over 400,000 unorganized sector firms using the National Sample Survey Office’s 2022–23 Annual Survey of Unincorporated Sector Enterprises. The results revealed significant disparities:
Women entrepreneurs, especially those in India's vast unorganized sector, are less likely to be approved for formal business loans than men.
Major challenges include the requirement for collateral, risk perception by banks, limited credit histories, and lack of professional networks.
The divide persists despite government schemes aimed at encouraging women-led ventures, such as Mudra Yojana and Udyogini, which have increased access to accounts but haven’t equally improved meaningful loan dispersal.
Root Causes: Why Do Women Face Disadvantages?
Several factors contribute to the gender gap in accessing formal finance:
Lower Asset Ownership: Women often cannot provide collateral acceptable to lenders, as asset ownership remains skewed toward men.
Limited Credit History: Women-owned firms frequently operate offline or in cash, giving banks less data with which to assess loan applications.
Small-Scale Businesses: Most women entrepreneurs run micro-enterprises, which are overlooked by mainstream banks and investors for higher-value loans.
Lack of Networks and Skills: As many as 49% of women entrepreneurs report limited access to business networks and formal training.
Discriminatory Practices: Studies found rejection rates for women applicants are often 2.5 times those faced by men—even though data shows women tend to have higher credit consciousness and lower default rates.
The Digital Solution: Closing the Gap
The GIM study found that when women-led firms adopt digital tools such as internet banking, digital financial services, or even e-wallets, their chance of securing formal loans increases. The adoption of fintech brings more women into formal credit pipelines and helps reduce bias by providing lenders with more reliable credit histories and transaction data.
Professor Ashay Kadam, GIM, said, “Digital technology and financial inclusion can help address some deep-rooted inequalities. But at the bottom of the pyramid, driving financial literacy is just as important as innovating new financial products.” The study emphasizes that digital literacy, alongside targeted product design, is critical to bridge the gender gap.
Government Schemes and the Path Forward
While schemes such as Mudra Yojana, Udyogini, Mahila Coir Yojana, and TREAD have improved account access and offered low-collateral credit to women, the “missing middle” problem persists: women may get microfinance for very small enterprises but struggle to access larger loans needed to scale. The Mann Deshi Foundation and similar groups have shown that with targeted interventions, women’s access to enterprise finance can improve dramatically, but broader reforms are needed.
The Road Ahead: Recommendations
Expand Collateral-Free Loans: More schemes focusing on unsecured lending and flexible collateral should be developed.
Accelerate Digital Adoption: Government and private sector should boost digital finance training and encourage e-banking use among women business owners.
Increase Financial Literacy: Targeted upskilling and mentoring for women is vital to strengthen their bargaining power and ability to navigate loan procedures.
Sensitize Banks and Staff: Training programs for bank staff to reduce gender bias and improve awareness of women-focused policies can improve outcomes.
Conclusion
India’s push for entrepreneurship can only realise its true potential when women have equitable access to formal credit. The latest GIM research makes clear that while progress has been made, there’s urgent need to close the gender gap and unlock opportunities for women in business—through digitization, targeted reforms, and greater financial literacy.
Sources: Economic Times, The Week, Udaiti Foundation Report, Aditya Birla Capital, Times of India Blog
