Women pip men in matters of lending credit profile
Statistics show that women borrowers are better at repayment and have less defaults on loans. This is a well-established fact.
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Statistics show that women borrowers are better at repayment and have less defaults on loans. This is a well-established fact. Let us delve into the core reasons behind the same. The core reason could be the sociological conditioning along with inherent nature of women. These reasons could be categorized into the following broad heads.
Risk Averse
Women are naturally risk averse. Psychologists believe that each gender manages risk differently, with research showing that females are more likely to consider the big picture and wider implications. When it comes to risk management, it is critical to consider every potential impact, which means that women's perspectives may be more valuable to businesses and less risky. Researchers at the University of Southern California discovered in 2012 that women are less likely than men to take risks in stressful situations, which scientists believe is due to differences in how their brains process and respond to risk. As a result, businesses led by women are less risky.
Good at Multitasking
Women excel at multitasking. Women have demonstrated their dexterity in handling multiple tasks by managing the house and working a full-time job. Women are less affected by interference when performing certain tasks than men, and hormones may contribute to this disparity.
Higher Mental Strength
Women have greater mental fortitude than men. According to new research on gender-based brain differences, women's brains are more active in many areas than men's, particularly in the prefrontal cortex, which is involved with focus and impulse control, and the limbic or emotional areas of the brain, which are involved with mood and anxiety. The study's findings of increased prefrontal cortex blood flow in women versus men may explain why women have greater strengths in empathy, intuition, collaboration, self-control, and appropriate concern. One of the main reasons why female borrowers will have fewer fund diversions and intentional defaults.
Risk Perception and mitigation approach
Men are thought to perceive less risk in the world because they create, manage, control, and benefit from so much of it. This is due in part to the inherently subjective nature of risk perception, in which social, cultural, and political values, as well as psychological factors, can interact and influence an individual's risk assessment. Q McCallum, a data science consultant based in the United States, discovered that women are more likely than men to seek outside expert advice on areas outside of their expertise as a smart risk-mitigation strategy to head off both known and unknown dangers. That, according to McCallum, is the key. He believes that when it comes to gender differences in risk perception, men are more likely to pretend that problems won't happen.
According to a TransUnion Cibil report on women's participation in India's retail credit market, the credit quality of women borrowers is higher than that of men—53% of women borrowers compared to only 47% of men had prime scores (prime score range: 731-790+). The majority of female borrowers repay their loans on time. Women borrowers have a much lower consumer level 90-day-plus delinquency rate of 5.2%, compared to 6.9% for men borrowers.
According to the same report, the number of female borrowers is increasing, but they still account for only 29% of all borrowers. The low credit penetration among female borrowers may be due to financial institutions' lack of confidence in their ability to pay, albeit for insignificant reasons. Financial institutions usually require a male co-applicant/guarantor or collateral to back up loan repayment.
If we only look at the statistics and take some inspiration from the microfinance model, which primarily involves female borrowers, we should be able to reassure female borrowers and increase lending to this group of applicants.
Loan portfolios with a higher proportion of female borrowers have consistently outperformed books with a lower proportion of female borrowers. It is past time for the lending community to recognise this and place more trust in this group of borrowers.
Author: Ms. Irem Sayeed - Chief Credit Officer at U GRO Capital
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