While a majority of the small businesses globally are owned by women, a significant gender gap persists in access to credit from formal financial institutions in low income countries, with women-owned small businesses facing more obstacles compared to their male counterparts. The challenges include less favourable credit conditions such as higher credit costs, shorter repayment periods, and approval of lower amounts than requested. Several factors contribute to this gender divide, including lack of collateral, low educational attainment, legal status, inadequate financial literacy, as well as deeply ingrained cultural barriers. Overall, women face a higher probability of rejection, and the majority of women do not seek loans because they are afraid of being rejected. This credit constraint hampers the operations of women-owned businesses, limiting their competitiveness and growth; thereby slowing their contribution to national economic development in low-income countries.
Given the ability of digital finance technologies to collect alternative data (i.e. calling patterns, mobile money usage, social media networks) to address the information asymmetry, the rise of digital lending has the potential to significantly narrow the gender gap in access to credit. Additionally, the digital lending platforms use machine learning algorithms to process, approve, disburse, and record payments, eliminating potential human bias (as maybe the case with loan officers), thus bringing consistency and improved decision-making that could address gender discrimination present in traditional bank loan processing. Besides, digital lending technologies simplify the loan application process by reducing bureaucratic obstacles and alleviating traditional lending constraints which often discourage women from seeking loans from traditional financial institutions.
Recognising the revolutionary power of digital finance, this project investigates the impact of digital lending on reducing the gender gap in the credit markets and the performance of small businesses in Kisumu City, Kenya. The study focuses on small businesses selling goods from structures of any type (permanent or temporary), and those without fixed structures but operating from a fixed spot where they display their merchandise every day. By shedding light on these critical factors, stakeholders and policymakers who are increasingly concerned about access to finance by households and enterprises across Africa and the world can better understand the dynamics at play and make informed decisions to improve the digital credit ecosystem.
