Rural electrification is already having a major impact on society and female empowerment in emerging markets. We believe that in some countries, especially India, more profound shifts are underway with the advent of Fintech.
The impact of electricity on female emancipation is often underestimated. Reliable electricity frees up women’s time with the help of household efficiency devices. Women can store food in the fridge, saving them having to repeatedly go to the market to ensure that ingredients and meals are always fresh. Women can save even more time by using an electric water filter, rather than walking to fill up canisters with clean drinking water and then carrying them home every day. In the time they save, they can work, earning money for the family.
When South Africa pushed through a massive electrification programme at the beginning of the century, female workforce participation rate jumped by 9.5 percent[i].
In India, the Modi government started an equally ambitious programme in 2014, aiming to connect 80 million households without electricity to the power grid by 2019. But, despite this electrification, female workforce participation fell from around 35% a decade ago to around 27% now.
“Statistics miss a growing cohort of female home entrepreneurs, or homepreneurs, who have started up their own businesses”
Part of the drop in the female workforce participation rate is explained by Indian women spending more time in education. But statistics miss a growing cohort of female home entrepreneurs, or homepreneurs, who have started up their own businesses thanks to the freedom afforded to them by their newly-acquired electric appliances. Our own on-the-ground research supports the supposition that many women are not going to work in factories, where they would be counted in the formal, national statistics. They are instead starting their own business.
The opportunity for homepreneurs
A typical example of a homepreneur is Mira. On an April morning, in 2012, Mira was riding her scooter to the gym where she worked as a yoga instructor when she was hit by a truck. She spent the next three months in a Mumbai hospital. She could no longer work in a gym. One the day of her accident in April 2012, she left the 27% of Indian women in the labour force and has not officially rejoined since.
In 2015, she spotted an opportunity. Women who traditionally cooked for family celebrations were now looking to buy ready-made homemade food for these events. She convinced her father-in-law to give her an apartment rent free and hired a widow to help her. She used Facebook and WhatsApp to spread the word, convinced that she could provide homemade food at a low cost.
Starting the business was difficult. They only had a few small pots, which meant cooking many batches, but she stuck with it. Two years later Mira employed five widows, paying each USD$135-$160 per month. Any cash that remained was reinvested in the business.
Mira does not run an NGO to help widows. She runs a for-profit-business. Not only did she spot the unfulfilled demand for women to outsource cooking for special occasions, but she also saw the opportunity to hire widows whose lives and identities in conservative India had traditionally ended with the death of their husbands.
In order to grow, Mira needed credit. Traditional banks tend to look at borrowers fairly inflexibly. If she had a regular job she might have been eligible for a loan, paying interest at about 12%, but without formal employment, she was only eligible for a microfinance loan at 22%, which she was unable to afford.
“Fintech is unleashing a change in consumer patterns for which many traditional financial companies are unprepared.”
To offer cheaper loans to people like Mira, despite her relatively low-risk profile, microfinance companies would need to redesign their labour-intensive processes. They simply know very little about her. Data on her spending behaviour, on her creditworthiness, may have been sitting in her bank, but accessing and assessing that information by a third party is impractical.
Even for traditional banks who need to analyse and verify individual business revenues and costs, credit assessment is uneconomic for such small loans. For borrowers like Mira, it would mean time-consuming scrutiny of masses of records, incurring substantial costs, which would have to be passed on with higher interest rates.
The Fintech Revolution in Rural India
We think Fintech is on the cusp of revolutionising prospects for small businesses like Mira’s in India. We have already seen this trend in China. Transaction costs at PayTM, an Indian mobile payment system are zero, meaning that Mira can both pay all her employees, and receive payments, cheaply and seamlessly through her smartphone. This also allows her to create a digital credit profile, enabling her to access lower-cost, fair loans, and grow her business, employing more of India’s women.
Neither Mira nor her employees are counted in India’s official employment statistics, and even more surprisingly, the country’s GDP calculation. They are part of a silent revolution of women homepreneurs who still perform many of their old roles in the households, yet also bring in income and upgrade their families’ lifestyles and spending patterns.
We believe this Fintech revolution will unleash a change in consumer patterns for which many traditional financial companies are unprepared. There’s another question that remains to be answered: when will this Fintech revolution hit the developed markets, and are the banks here ready...?
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of Trinetra Investment Management LLP and are subject to revision over time. Trinetra is authorised and regulated by the Financial Conduct Authority in the United Kingdom.
[i]Dinkelman, T. (2011). The Effects of Rural Electrification on Employment: New Evidence from South Africa. The American Economic Review, 101(7), 3078-3108. Retrieved from http://www.jstor.org/stable/41408731