What Constrains Financial Inclusion for Women? Evidence from Indian Micro Data

The role and relevance of gender in financial inclusion has been an evolving area of research in recent times. Although there are several cross-country studies on this aspect, few within-country studies have addressed this issue in a comprehensive manner. In this context, exploiting disaggregated household-level data for India, we analyze the interface between gender and finance. More specifically, we examine whether gender matters for financial inclusion and if so, what are the possible factors that influence this relationship. Our findings suggest significant disparity in both the access to as well as the use of finance by gender. On average, female-headed households are 8% less likely to access formal finance and 6% more likely to access informal finance as compared to households that are headed by males, after taking into account other relevant household and state-level characteristics that are important in explaining financial access by households. Similar evidence carries over to the use of finance: households headed by female use 20% less cash loans as compared to male-headed households. Subsequently, we investigate the possible channels which impede financial inclusion for female-headed households. Our analysis highlights that for female-headed households, education and wages are more relevant in explaining the access to finance whereas political and social factors are much more germane in explaining the use of finance.