NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, July 21, 2015

It’s hard to deny the presence of gender gaps. We see evidence of them in education, income, politics, and business. But there is another gender gap that is less often discussed, and has proven to be incredibly important worldwide: the credit gap. The credit gap refers to the fact that women are still much less likely to obtain credit than men, whether from a bank or informal moneylender.

The World Bank estimates that 1.3 billion women around the world live “largely outside the formal financial system”—specifically when it comes to their ability to obtain financial credit. That number highlights a huge inequality in our society, especially since we now have concrete evidence proving the economic benefits of women’s empowerment.

The World Bank estimates that 1.3 billion women around the world live “largely outside the formal financial system.” While lack of access disproportionately affects women, financial inclusion is indeed a matter of concern for both women and men who don’t have formal bank accounts: 2.5 billion people, or half of all adults. As a result of this exclusion, many individuals have had to figure out their own ways to saveinformally, helped along by new trends in technology that are enabling and scaling these methods like never before. For those who face financial limitations, informal savings options can provide new opportunities and freedom that would otherwise be unattainable.

Traditionally, informal savings were achieved through social groups like Rotating Savings and Credit Associations (ROSCAs) and Accumulated Savings and Credit Associations (ASCAs). ROSCAs work on a predetermined rotation, where each person makes a monthly deposit and the whole monthly sum goes to one member each month. ASCAs, which are slightly more complicated than ROSCAs, collect a fixed sum at regular intervals (weekly or monthly), and offer loans to their members that can be paid back in installments or in whole, and sometimes with an additional interest charge.

But these methods aren’t perfect, and leave some women vulnerable to insecure cash handling and erroneous bookkeeping. Not to mention, it prevents them from building credit—a key element to establishing financial freedom.