Women and credit: How to borrow effectively

Sanjeet Dawar
Managing Director, CRIF High Mark

When credit is utilised prudently, it can aid women in establishing and improving their credit scores, availing finance, and thereby achieving long-term financial goals.

Women today are engaged in diverse roles within the socio-economic ecosystem, from entrepreneurial ventures and high-level positions in corporate organizations to domestic duties. Women play a major role in financial planning and ensuring the household’s financial well-being. Credit can benefit women in various ways, including empowering them economically, promoting financial inclusion, and supplementing their decision-making power. Credit plays a vital role in women's financial empowerment, enabling them to access funding and resources necessary for achieving their goals and aspirations. It can have a significant impact on women’s income-generating opportunities. Over the last few years, credit has helped women's entrepreneurship flourish.
There are increasing number of women who are taking advantage of credit to achieve their goals in life, and this is reflected in the latest CRIF report published on International Women’s Day in March 2023, which reveals that portfolio outstanding across major retail loans availed by women have risen by 25 percent to Rs 26 lakh crore as of December 2022 from Rs 20.7 lakh crore as of December 2021. The share of female borrowers in overall retail loans (by value) has increased from 25.3 percent as of December 2021 to 26 percent as of December 2022. The share of younger female borrowers <=35 years has continued to increase over the last 3 calendar years from 38.3 percent in CY 2020 to 43.4 percent in CY 2022.

The changing landscape of lending and improving women's access to credit
The lending landscape in India is rapidly evolving to cater to the changing requirements of borrowers. The shift in women’s credit behaviour can be attributed to advancements such as digitisation which is leading to easy and quick access to formal credit, and credit scoring. There are several government-led initiatives aimed at women to increase the accessibility of loans. The Reserve Bank of India (RBI) has implemented certain regulatory reforms to encourage responsible lending and safeguard the interests of borrowers as it has made it mandatory for lenders to disclose the effective interest rate, processing fees, and other charges upfront to borrowers. Additionally, efforts by the government to increase financial and digital literacy are contributing to this development.

Investment is the best way to raise money in future
Financial institutions often measure risk in part based on an applicant’s savings/deposit account history and in part based on their previous credit behaviour. When credit is utilised prudently, it can aid women in establishing and improving their credit scores, availing finance, and thereby achieving long-term financial goals.
Creating a healthy financial future begins with effective and robust planning. Starting young is always wise, once you earn your first income, invest it to get a higher return. Investing early is essential so you can take full advantage of compounding, which can help multiply your returns exponentially over time. You should first determine your investment capability, then choose the right assets, and then allocate your investment funds accordingly. In this way, you would not have to worry about financial burdens even if your investments did not perform well.
But if women must still borrow — over and above what their investments can subsidise their dreams, then here are some handy tips to create and maintain a healthy credit profile:

Prioritise, budget and save for your goals
Start by setting financial goals, although timelines might vary and there can be an overlap depending upon your priorities for the short-term, mid-term, and long-term. Among the short-term goals may be setting a budget, saving for an emergency fund, paying rent, insurance, student loans, credit card payments, purchasing personal items, travelling, getting married, and making repairs and renovations. The mid-term goals include buying a home, saving for a down payment on a car, and paying off debt. To save for retirement, pay off a mortgage, start a business, and save for a child's education would all fall under the category of long-term goals. It is important to keep in mind that careful tax planning goes hand in hand with the overall financial planning process. Make sure that you keep track of all the tax exemptions and rebates you can get across all your investment instruments to ensure your investments are tax-efficient.

Invest across asset classes
Depending on the age and risk tolerance, consider allocating investments across different asset classes to reduce the risk of loss and maximise returns. One should also look for investment avenues tailored for women that provide higher interest rates to women fraternities such as FDs, and government-oriented schemes for women.

Institutional access to credit
Today, women entrepreneurs have easy and quick access to formal credit due to various government-led initiatives that have led to increased accessibility and affordability of loans. These schemes are specially aimed at women with benefits like lower interest rates, collateral-free loans, credit-linked capital subsidies, and flexibility in repayment.

Maintain a healthy credit score
If you must borrow then make sure you have a good mix of both, secured and unsecured loans. In this way, you demonstrate that you can handle a variety of debts. You should keep an eye on your credit utilisation ratio, which is the ratio between your credit limit and your credit spending. Make sure you don't max out your credit cards.
Overspending on your credit card repeatedly has a negative impact on your credit score. Make sure you pay your bills on time. Healthy credit scores demonstrate good credit behaviour and give lenders confidence about your repayment ability. It also allows you to negotiate with the lender to obtain credit on better terms. Therefore, maintaining and building a good credit score is crucial.

Protect your assets with insurance
It is imperative to cover your assets with insurance. This may include purchasing health, life, vehicle, and property insurance to safeguard against unexpected events that can have a significant financial impact. By protecting assets with insurance, women can ensure their financial portfolio remains secure, even in the face of unforeseen challenges. 

Take the time to regularly review your portfolio
You cannot expect to reap the benefits of investing without monitoring your portfolio. In this way, you can make course corrections if necessary, or simply increase investments in assets that are performing well.
However, borrowers should be careful not to take on unnecessary credit or over-invest in their finances, thus falling into a debt trap. Overall, credit is a critical tool for one’s economic empowerment, which will help in enabling you to overcome financial barriers and achieve your full potential. By taking control of your finances and making informed decisions, you can pave the way for a brighter financial future and achieve milestones in life.

Source: Publication:Moneycontrol,17th Aug,2023