What Can Digital Credit do for Women?
CEGA’s Digital Credit Observatory (DCO), which aims to understand the impacts of digital credit — micro-loans offered via mobile phones — on borrowers, is taking a closer look at the relationship between digital credit and women’s economic empowerment. Alexandra Wall, graduate student researcher with the DCO, explains our new focus in this blog post.
According to the International Center for Research on Women (ICRW), “a woman is economically empowered when she has both the ability to succeed and advance economically and the power to make and act on economic decisions.” This definition provides guidance for understanding the relationship between digital financial services and women’s economic empowerment. The focus on women’s economic empowerment stems from the idea that economically empowered women are better equipped to achieve their own goals, provide for their families, contribute to society, and advance their own rights.
THE CURRENT STATE
It’s hard to deny that rapid proliferation of mobile phones and digital financial services in low- and middle-income countries has major implications for women’s empowerment. GSMA’s 2019 Mobile Gender Gap Report notes that mobile phone ownership and usage can empower women through connection to others and access to information and services. Innovation for Poverty Action’s (IPA) report on Women’s Economic Empowerment Through Financial Inclusion suggests that digital financial services, often delivered via mobile phones, can facilitate the provision of effective and affordable financial tools. Digital platforms, if designed appropriately, have the potential to reduce the financial exclusion of women through improved privacy, financial autonomy, and access.
Despite this promise, a gender gap in use of digital credit is beginning to emerge: a 10 percentage-point gap in borrowing exists, with 55% of unique borrowers being male and 45% female. Nationally representative surveys conducted by CGAP and FSD Kenya reveal that borrowers tend to be young, urban men who are self-employed or wage employed. Men and women also appear to use digital loans differently. The CGAP and FSD surveys reveal that in Tanzania, women self-report using loans for business purposes, medical expenses, and school fees whereas men report borrowing to pay for household expenses, airtime, and bills such as rent or utilities.
A recently conducted quasi-experimental study by Prashant Bharadwaj, William Jack, and Tavneet Suri evaluates the take up and impacts of M-Shwari, the most widely used digital credit product in Kenya. Researchers found digital loans expand access to credit and help households forego expenses due to negative shocks. However, results showed no significant impacts on welfare measures including savings, asset ownership, and consumption. Importantly, researchers found “no differential impacts based on gender of the respondent.”
Rigorous, experimental research is needed to better understand the insights on gender and digital credit that are beginning to emerge from descriptive surveys and quasi-experimental studies.
THE CHALLENGES AND BARRIERS
Because most digital financial services — including digital credit — rely on mobile platforms, the level of access to and usage of mobile phones by women is a key factor in enabling financial inclusion and women’s economic empowerment. Unfortunately, while mobile phone use continues to expand within low-and middle-income countries, GSMA’s Mobile Gender Gap Report indicates that women still lag behind men in low- and middle-income countries in terms of phone ownership (10%) and use of mobile internet (23%):
This translates to 197 million fewer women than men owning a mobile phone and 313 million fewer women than men who use mobile internet. GSMA reports that affordability of mobile phones, literacy and digital skills, safety, and security are the primary barriers for women to own a mobile phone and use mobile internet. According to GSMA, “closing the gender gap (in mobile) presents an important opportunity to support women’s well-being.”
While mobile phone access may be a necessary condition for women’s financial inclusion, it is far from sufficient. ICRW’s report on gender and digital financial inclusion suggests that gender norms, intra household decision making and power, and knowledge of products, further limit access to digital financial services. And IPA points out that barriers to women’s entrepreneurship and increased income go beyond credit or capital constraints, which demonstrates that well-designed financial products are only part of the solution to women’s economic empowerment.
OPPORTUNITIES FOR FURTHER RESEARCH
Organizations such as ICRW, IPA, CGAP, and Alliance for Financial Inclusion (AFI) have conducted research and produced reports, toolkits, blogs, and frameworks on the topics of women’s financial inclusion and economic empowerment. Yet significant knowledge gaps remain.
Further research is needed on:
- How digital financial inclusion can be affected by gender norms (ICRW)
- What women prioritize in financial products and services (i.e. more privacy) and why (ICRW)
- The mechanisms by which digital financial inclusion can affect employment opportunities or choices of occupation (ICRW)
- The optimal design of products that directly address women’s unique preferences and the challenges they face (IPA)
- The effectiveness of flexible repayment terms, appropriate pricing, loans targeted for specific productive purposes, and more nuanced algorithms to serve more vulnerable groups, including women (CGAP/FSD Kenya and Bharadwaj et al. 2019)
THE DCO’S NEW FOCUS ON WOMEN’S ECONOMIC EMPOWERMENT
There remains a dearth of evidence on the specific mechanisms by which women are economically disempowered and the potential of digital credit to empower them. The DCO is in a unique position to build on our existing portfolio of studies to promote knowledge generation in this space, through an upcoming agenda-setting meeting in Berkeley and a pilot RFP (details on both activities coming soon). Specifically, the DCO aims to examine the relationship between digital credit and women’s empowerment by studying the impacts — both positive and negative — of digital credit on women’s economic empowerment, and the optimal design of digital credit products and related consumer protection measures to facilitate financial inclusion, economic empowerment, and related outcomes for women.
