Low Credit for Women in MSMEs: RBI Highlights Growth Barriers

Neeraj Nigam, executive director at the Reserve Bank of India, noted that the low labor force participation among women is hindering financial inclusion efforts and broader economic growth.

He emphasized the need to increase credit supply to women, revealing that only 7 percent of total loans to micro, small, and medium enterprises (MSMEs) are given to women-led businesses.

"A significant barrier to financial inclusion and economic development is the need for more female participation in economic activities," Nigam said, citing data that showed female labor force participation at 32.8 percent in FY22 compared to over 77 percent for men.

Women account for only 7 percent of the outstanding credit to MSMEs, despite nearly one-fifth of MSMEs being women-led, he added.

Speaking at the 'Financing Women Collaborative' conference, Nigam expressed satisfaction with access to financial services, crediting schemes like the Pradhan Mantri Jan-Dhan Yojana (PMJDY) and social security transfers.

While supply-side challenges are being addressed, Nigam highlighted demand-side issues that need attention, including low capital levels, labor participation, societal norms restricting women's inheritance of property (limiting collateral), and lower access to education and training.

He also mentioned that financiers stereotype women borrowers as higher risks, leading to higher interest rates, greater insistence on collateral, or outright rejection of loan applications.

Nigam pointed out behavioral issues among women borrowers, such as being more risk-averse, less confident in negotiating loan terms, and less likely to apply for new loans due to fear of rejection.

He noted that the priority sector lending (PSL) mandate has become a viable business model for banks and microlenders, but constraints remain on the demand side.

To address these challenges, the RBI has initiated financial inclusion efforts, including opening 2,400 financial literacy centers at the block level in partnership with nonprofits and making it compulsory for lead banks to have a literacy center in each district.