Reducing Gender Gap in Financial Inclusion Through Access to Credit

5 min readMar 8, 2023

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The world had made significant progress toward financial inclusion in terms of improving access to basic deposit accounts and digital payments. Millions of formerly underserved have moved from cash-based transactions to digital ones. While accounts and payment services are the starting points for financial inclusion, it is access to credit that is a crucial lever for transforming lives.

Today, the biggest gap in financial inclusion remains in access to credit — the gap being even higher for women, with significant implications for women’s economic empowerment.

According to the World Bank, on average women have less access to identity documents required for opening bank accounts. On average, women also earn less than men, and therefore have lower account balances. As a result, women have weaker credit profiles hence they are less likely to be approved for loans. This makes it difficult for them to start and grow businesses, invest in education, or improve their homes.

In the Philippines, in general, access to credit remains significantly lower than in other developing countries. Even for the minority who do have access to formal credit, there is a wide gap between the average loans availed by male and female borrowers. Philippines’ Credit Information Corp (1) reports that the average loan for females is P605,000 while the average loan for males is P1.1 million.

Drivers of the gender gap in credit access

One of the key drivers of this gap is traditional credit scoring models (2) that put women at a disadvantage because they rely more on historic financial data, which disfavor borrowers who were excluded in the past. Traditional lenders also rely on collateral for security which disfavors women as they are less likely to own land or have property titles.

Further, credit algorithms that are “gender-blind” could end up biased against women if they draw any input that happens to correlate with gender(3). For example, in the Philippines, almost 90% of teachers happen to be women; if an algorithm considers teachers as a more risky job profile than others, then it could introduce a gender bias.

Another example is if a credit risk model considers gender as a proxy for income, and since women on average earn less than men, then the model could introduce a gender bias.

However, research shows not considering demographic data can create even more discrimination when applied to ML-based decision-making, particularly when a significant imbalance between population groups exists (4). Therefore the variable of gender should be present in the credit algorithms so lenders can detect, prevent, and reverse biases through affirmative actions.

Lenders benefit from improving credit access for women

There is not only a public policy case for targeting female borrowers but also a strong business one — there is ample research from global institutions that show women are more responsible borrowers than men as they are better at repayment and have fewer defaults on loans. Microfinance lenders with more women borrowers report more sustainable and profitable portfolios as a result (5).

Ways to reduce the gender gap in credit access

Minimize pre-selection bias

Lenders should use more ‘alternative’ sources of data that give insight into the financial lives and capacity to pay that is not limited to credit history, ownership of collaterals, extensive documentation, and credit bureau data — the traditional underwriting methods that naturally disadvantage women.

Usage of new sources for assessing creditworthiness such as online purchases, mobile phone/wallet transactions, and payment of bills are gender-neutral indicators of financial behavior and can allow lenders to rely only on demographic data that has in-built biases.

Further, effort should be made to adopt a gender-responsive credit scoring model that can use women-specific data to evaluate the creditworthiness of those who do not own property and/or have not borrowed from banks in the past.

2. Track gender performance indicators

Lenders should actively track gender-related KPIs to assess their portfolio from the lens of inclusion such as:

-% of women loan applicants
-Average income of women applying for credit
-Average loan approved for women
-The proportion of gender passing through various risk filters
-Delinquency level of women
-% of first and repeat women borrowers

Gender gaps in these performance indicators should be investigated and improvement in these KPIs should be made part of ESG goals.

3. Build personalized experiences for women

Research shows that women — who bear disproportionate domestic responsibilities — find it challenging to access credit from formal financial institutions due to distance and limited hours of operations (6). Digital lending addresses this problem of access, but for most fin-techs, the default customer persona during product development tends to be men (7).
Fin-techs need to go beyond “pink-washing” and make women part of the product design, and not just in the marketing plan. This can be done by proactively seeking inputs from female users to design products around women’s needs and personalizing the experience to address female-specific attitudes such as higher risk aversion.

The research also shows that women tend to have lower financial literacy rates than men (8). Until women understand and trust new digital credit products better, the gender gap in access to credit and financial inclusion will persist. There is a need to build trust through responsible lending practices such as providing credit education, being transparent in terms and conditions, and adopting a customer-first approach to address repayment difficulties.

By empowering women to get equal access to credit, we can promote socioeconomic growth, reduce poverty, and create a more equitable world.

I am currently the Chief Marketing Officer for UnionDigital Bank, a fully digital bank and a wholly owned subsidiary of UnionBank of the Philippines. UnionDigital Bank is the leading digital lender in the Philippines with the mission to drive credit inclusion through responsible and sustainable lending practices that elevate people’s lives. The views expressed in the article are personal.

Sources:

Reducing Gender Gap in Financial Inclusion Through Access to Credit

Drivers of the gender gap in credit access

Lenders benefit from improving credit access for women

Ways to reduce the gender gap in credit access

Written by Munmun Nath

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