How Fintech Can Enable Financial Inclusion and Reduce Gender Gaps in India

Women's entrepreneurial opportunities are limited by poor access to financial services. Photo: ADB
Women's entrepreneurial opportunities are limited by poor access to financial services. Photo: ADB

By Kanupriya Gupta, Anuj Chaudhary

The traditional banking system in India is struggling to meet the needs of under-served communities, including women. Fintech solutions can bridge this gap and expand financial inclusion if pursued carefully and with the right precautions.

Traditional financial institutions in India, including banks, face challenges in serving a large segment of the population, particularly in rural areas due to their limited physical presence.  

This scarcity impedes formal banking access, causing inconvenience and additional costs for those traveling long distances. Moreover,  the cumbersome paperwork and stringent documentation required by banks often deter people from seeking their services, particularly those with limited education and literacy.

For women, traditional banking poses additional challenges, marked by gender bias and discrimination, limiting financial autonomy. Cultural norms and collateral requirements for loans further disadvantage women. Consequently,  many women are unjustly denied critical credit access, hindering economic empowerment and financial independence in their entrepreneurial pursuits.

Fintech firms are playing a significant role in bridging financial inclusion and gender gaps in India. By leveraging technology, these firms make financial services more accessible, affordable, and user-friendly, thereby helping to empower women and other underserved groups. The Reserve Bank of India’s Financial Inclusion Index showcases this progress, rising from 43.4 in 2017 to 56.4 in 2022, primarily due to enhanced financial access. Fintech firms are at the forefront of this financial transformation through innovations such as digital wallets, mobile money, peer-to-peer lending, and innovative micro-insurance products.

The Government of India has played a key role in advancing the fintech sector through initiatives like Digital India and the establishment of India Stack, a robust digital infrastructure. The JAM trinity—Jan Dhan, Aadhar, and mobile internet connectivity—has empowered individuals, especially women and underserved businesses, to access financial services via smartphones.  Moreover, the introduction of the Unified Payment Interface has reshaped India’s digital payment ecosystem by allowing bank accounts linking to mobile phone numbers for seamless transactions.

Fintech firms are playing a significant role in bridging financial inclusion and gender gaps in India by making financial services more accessible, affordable, and user-friendly, thereby helping to empower women and other underserved groups.

Some of the ways fintech firms are improving financial inclusion in India, especially for women, are:

  • Tailored products by unbundling services:  Fintech firms are unbundling services in India by breaking down traditional financial products and services into their component parts. Traditional banks typically offer a bundled savings account, current account, and a credit card. Fintech firms, on the other hand, may offer these services separately, allowing customers to choose the services that they need and want. This especially benefits women who demand tailored financial solutions and greater flexibility. Firms such as Dvara SmartGold offer micro savings and investment products to rural women, enabling them to invest in gold and build their savings. Women can save and invest as little as ₹10 per day using their services. 
  • Enhancing financial literacy: Fintech firms are using their technology platforms to improve financial literacy in India, including the poor and women. These companies furnish educational materials—articles, videos, and infographics—that teach people about financial concepts such as budgeting, saving, and investing. They also offer personalized financial counselling services to their users. They also use ‘gamification’ – the application of game design principles – to make financial education more interactive and engaging. Saksham, a mobile app developed by the National Bank for Agriculture and Rural Development, educates rural customers, including women self-help groups, on a wide spectrum of financial topics such as saving, investing, borrowing, and insurance and is available in multiple Indian languages. 
  • Increased financial access: Firms such as Grameen Financial Services harness technology to extend microloans to small-scale entrepreneurs and women in rural areas, who often lack traditional collateral, such as land and property. The firms use non-conventional data, such as mobile phone usage data and transaction history, to access the creditworthiness of rural women. Moreover, firms like Kisan Network and Jai Kisan cater specifically to farmers, offering mobile-based platforms to obtain agricultural inputs, credit, and vital market information. Digital wallets, provided by firms such as Phonepe, Paytm, enable cashless transactions, empowering individuals including women who lack traditional bank accounts, to handle payments, receive remittances, and access essential services conveniently and securely. 
  • Reduced costs of financial services: Indian fintech firms have reduced financial service costs by leveraging technology, eliminating physical infrastructure and operational overheads. Platforms like Paytm and Google Pay offer affordable or free transactions, sidestepping traditional processors. Robo-advisors provide low-cost portfolio management, democratizing professional investment advice. Peer-to-peer lending lowers interest rates, benefiting borrowers and lenders. Innovators like Paynearby collaborate with micro-entrepreneurs, extending financial services to rural customers, including women. 
  • Enhanced customer experience through hyper-personalization: Indian fintech firms are embracing “hyper-personalization”, tailoring financial products and services to meet individual needs and preferences. Through advanced data analytics and artificial intelligence, these companies gain deep insights into customer behavior, enabling them to offer personalized recommendations and customized solutions. For example, firms may offer a shorter repayment term to a woman who owns a seasonal business or may offer a lower rate of interest to a woman who has a good track of repaying loans. Similarly, digital lending platforms use alternative data sources to assess creditworthiness while robo-advisors provide investment strategies based on investors' risk profiles and financial goals. This hyper-personalization not only enhances customer satisfaction but also fosters greater financial literacy empowering consumers to make informed decisions.

While fintech for financial inclusion has many advantages, it also poses risks. The foremost concern revolves around cybersecurity threats and data breaches which may compromise personal information and expose consumers to financial fraud or reputational damage.

Another issue is that the excessive reliance on algorithms and artificial intelligence in fintech decision-making processes may perpetuate prejudices, resulting in unequal access to fair credit. For example, if women and rural people were historically denied credit more frequently than urban borrowers, an algorithm trained on this data may be more inclined to deny credit to women and rural borrowers, even if they are equivalently eligible.

Despite these concerns,  the benefits of fintech services could far outweigh the risks if customers remain cautious and well-informed. Implementing robust consumer protection rules and clear regulatory frameworks by the regulator can ensure the safe and responsible growth of fintech while mitigating potential risks.