By Hemanth Gorur
Personal loans can be very handy in times of financial deficit or emergency situations like sudden hospitalisation. This can be even more so for Indian women as they seem to be earning less, spending more on medical expenses, yet receiving less insurance protection over time.
As per a recent Demographic and Health Survey report, participation of Indian women in the workforce has dipped by 50% over the last decade. While the burden of non-communicable diseases on Indian women, has increased, only a fifth of all women are covered by health insurance.
This should have reflected a strong growth in personal loans taken by women. On the contrary, the number of women seeking personal loans even with so many women-centric loan schemes is quite low. The reason is not too far to seek. Although easily available, personal loans can be quite tricky as they carry high interest rates but require no collateral as security. Payment defaults can quickly spiral into an insurmountable debt pile. Apart from this, women, in particular, may be shackled by unique reasons in availing a personal loan.
Insufficient income: A survey undertaken by women-centric financial services platform HerMoneyTalks.com revealed that one of the top reasons for potential loan rejection was inadequate or unsteady income, which was quoted by 54.7% of the women respondents. This may be borne out by the facts on the ground. Indian women earn 20-25% less salary than men, highlighting the gender dichotomy in pay. This may affect the approval or amount of personal loan available.
Let’s assume a woman working in a private sector earning `20,000 per month needs a personal loan for `3.5 lakh. She may be eligible for the loan as most banks offer 25 times the monthly salary as the maximum sum she can borrow. So, for a three-year tenure at 17.5% rate of interest, the loan EMI would come to `12,566. This leads to a situation where after paying her EMI she would be left with only `7,434 for the month, which may not be enough to sustain herself and build her savings. Her male counterpart with the same qualification and work experience, on the other hand, is more likely to earn up to `5,000 more than her, making the loan that much more pocket-friendly.
Stable credit history: The survey also revealed that close to one in five women felt a lack of stable credit history was the top reason why their personal loan request may be rejected. A few respondents also felt that a total lack of credit history was a major stumbling block in availing personal loans.
With growing financial awareness, women are starting to understand the need to have an independent credit score. Also, some public sector banks are offering credit cards to those with no credit history, helping housewives and women without credit history to build a credit score slowly but surely. A study by TransUnion CIBIL showed a 48% uptick between 2015 and 2018 in credit offtake to women borrowers.
Incorrect loan application: Around 7.5% of women respondents felt they may have submitted incorrect information in their loan application, leading to potential loan rejection. While this could be an awareness issue, it may also be a deficit in confidence as expressed by the respondents.
Physical location: Another 7.5% of women surveyed believed that not being physically present in a city where their bank was located may be a reason for loan denial. With personal loans being approved online, physical presence is no longer a necessity. So, while a majority of women may be gaining in financially awareness, there are still some nuanced beliefs that may be persisting.
While higher incomes and innovative products in the market can certainly ensure higher offtake of personal loans by women, financial awareness and confidence can equally play a part.