The problem with banks:
To put it very simply every bank must guard against non performing assets or bad loans while it looks to increase its profits. As a result, banks often end up lending to individuals that have a steady stream of income or the affluent class. Although a very flawed logic, the wealthy are seen as a safe bet when it comes to loans and advances. Private Banks have, in fact, done little to bridge gender gaps when it came to access to capital and much of the responsibility is being borne by public sector banks.
This creates serious distortion in the credit market in terms of availability and it has been seen that domestic banks are left with a pool of high risk borrowers. Domestic banks respond by tightening the credit norms leading to an overall decline in credit availability. Women constitute a major section of those marginalized in the banking system.
Expansion of access to formal loans enables formally credit constrained sections like women to enhance their household income by expanding or starting small businesses. For women access to credit is an opportunity for increased probability of economic well-being over above their financial empowerment which is a valuable goal in itself to bridge the gender gap.
Role of Peer-2-Peer lending marketplace:
Peer-2-Peer lending sites in India have eased the terms of access to capital to women. For example, barely months into our operation, we were able to mobilize lenders to fulfil the funding needs of the urban Indian women.
If I look at our internal data at Faircent, there has been a 42.9% surge in women approach for loans to contributing to family events like weddings or other rituals. About 38% of women applicants are single and employed in metros such as Delhi-NCR, Bangalore, Mumbai and Pune. The average ticket size of women seeking loans is above Rs. 2.5 lakh.
A significant portion of women seek funding for their business, having been denied the same from formal credit system. A gender wise registration data confirm that most of the women seeking loan from us are urban, independent, educated and financially astute.
In early days of operation itself, our lenders funded a first time woman borrower working with a leading airline company for her wedding expenses. While no banks were willing to lend her, she secured a loan at 17% from lenders at Faircent. So far, her repayment has been prompt and she has expressed her desire to foreclose the loan in near future. The importance of credit is lost if it cannot be had at the time of requirement.
Another telling example is an experienced lady entrepreneur who raised Rs. 5 lakh in early 2015 from lenders at our platform to expand her for-profit social venture which creates marketable opportunities for good produced by rural crafts people. She is a serial entrepreneur with more than 20 years of experience. Our lenders have enabled her to grow a rather unconventional business which aims to make a social impact.
The data so far has been a significant indicator towards the growing popularity of P2P lending marketplace in easing their access to credit. This has been because peer-to-peer does not have the trappings of banks. The algorithms and the systems built to assess the credit profile of an individual does not discriminate anyone based on gender. A far superior technological system, P2P cuts out human subjectivity and come up with the credit profile that is in sync with the real risks. For our lenders, this then becomes the basis of their decision.
It will be some time before we can tell for certain that P2P has what it takes to bridge the gender divide when it comes to access to capital. However, at the moment data points that P2P can play a crucial role towards economic sovereignty of women.