Lendingkart's AI-credit scoring model brings change in the world of financial disparity between genders

Building on the government's Digital India initiative and the principles of the India Stack project—paperless, presenceless, and cashless service delivery—India has become one of the world's fintech marketplaces with the quickest growth rates.

However, India still needs to support its female business owners, because fewer women than men are business owners in India. When women pitch in the concept of launching a business, very few of them receive financial support from their homes. To address this issue, several banks have developed special loan programmes for women who wish to launch their own enterprises and who are searching for financial support to grow their existing firms. Their main objective is to assist women in becoming financially independent and to assist women from various backgrounds in realising their entrepreneurial aspirations.

We spoke to Lendingkart President- Technology, Analytics, and Capabilities, Manish Bhatia about this. Excerpts from an Interview:

DQ: How Fintech in India Can Promote the Growth of Women-Led SMEs?

Manish: Women business owners contribute significantly to advancing the economic growth of the country. Still, India ranks third highest in the entrepreneurship gender gap across the world – only 33 percent of the early-stage entrepreneurs in India are women (GEM, 2014). Small women-owned businesses in India face a lack of access to capital as the biggest constraint in running their businesses. Women-led MSMEs, even after all the constraints, are still growing in India. The number of women-led businesses grew to 8.59lakh in Fy21-22, as opposed to 4.9lakh in Fy20-21.

So, there’s one question that we keep looking to answer for now– how do we ensure that there is no gender bias in the lending process?  There is however a very simple answer for this – Technology. Tech holds no biases.

Financial institutions need to build capabilities to leverage technology in simplifying loan processes for women – making it holistic and less cumbersome. At every step of the loan process, there needs to be clear communication and imparting of information and education to the customer. Gender sensitization is another important aspect to look at when providing loans to women. Lendingkart has a zero-touch process for loan applications – the entire loan journey is digital and can be completed in less than 5 minutes. As per the customer research, women entrepreneurs found the journey easy and were able to complete it without any external help.

DQ: What are the challenges faced by women-led SMEs?

Manish: Small women-owned businesses in India face a lack of access to capital as the biggest constraint in running their businesses. Other reasons for the low share of women-owned enterprises in India are constraints like the absence of support from family, societal biases, building own networks, lack of safety, and limited mobility. It is imperative to tackle gender barriers in access to finance and aim for the financial inclusion of women.

As per the IFC report, women have to make 4-5 visits to the bank as compared to men who make two visits. The absence of collateral is another reason why women fail to secure loans. Loan applications by women are likely to be rejected or delayed.

DQ: What are some of the steps are you taking to promote diversity among the clientele?

Manish: A report by World Women Banking analyzed Lendingkart’s AI-credit scoring model and concluded that it is unbiased and called it a welcome change in the world of financial disparity between genders. The AI-credit scoring model was accurate, fast, fair, and transparent.

Women’s World Banking’s study, Algorithmic Bias, Financial Inclusion, and Gender, which offers insights on where biases in AI emerge, how they are amplified, and the extent to which they work against women concluded: 

• On average, women were about as likely to be approved for a loan as men are
  • The credit scoring algorithm gave similar scores to men and women
  • Gender had nearly no effect on loan terms, including loan size and interest rate
  • Men and women customers of Lendingkart had the same repayment rate, different from the market average in which men customers represent nearly twice the non-performing assets (NPA) that women do (7 percent NPA versus 4 percent NPA).

At LK, 

• We provide loans for women up to 2 cr
• Collateral-free, transparent, unbiased 
• Reduced Cash Flow risks
• Increase business eligibility for higher amounts

DQ: How digitization and technological adaptation help women MSME players leverage their businesses?

Manish: Women have faced a lot of social stigmas. A Lot of these stigmas are around gender and race which you can see the moment you step into a bank.

-A digital system for loan approval runs without any of these biases which exist in a traditional offline process.

- Lendingkart is having a completely digital cloud-native solution. 

-Digitization is allowing women entrepreneurs from remote areas to get access to capital easily and the technology adoption is removing the social stigmas and biases and ensuring the evaluation is done in a fair and transparent manner on the merit of MSME business.

- Technology such as AI and ML offer a fairer, unbiased, data-supported root to financial processes such as loan allocation.

- If sufficient data is provided, algorithms such as Lendingkart’s credit scoring can prove to be less biased than a human being, as found by Women’s World Banking’s study, Algorithmic Bias, Financial Inclusion, and Gender. 

-These algorithms overcome common human errors and present accurate and reliable results, based just on the customer’s business and potential.

 Furthermore, fintech innovations can overcome the accessibility barrier by sidestepping traditional financial models limited to bank branches. Small but impactful differences such as these can bridge the financial gender gap, leading to women possibly contributing an estimated $770 million to the GDP by 2025 as per a McKinsey Report. 

-The same data shows this would translate to an 18% growth in the Indian economy, a significant number. Offering unbiased and accessible opportunities to women, hence, presents an opportunity for social as well as economic growth.