“Opening the digital marketplace”: How Aadhar is empowering India's female entrepreneurs

Edition #76 In a country where 86% of people lack access to formal credit, India's Aadhar program plays a huge role in empowering the otherwise financially dependent...

Over the past decade, India has seen a monumental shift in its digital government landscape. This has been largely fueled by the successful implementation of India Stack - the country’s unified software platform that brings together a variety of APIs for different applications. India Stack allows governments, businesses and startups to utilize a common digital architecture to collaboratively deliver digital services for the country, a pioneering approach to “opening the digital marketplace to the masses”.

Central to this infrastructure is Aadhaar - India’s 12-digit unique Digital ID number launched in 2009 that can be obtained by all citizens based on their biometric and demographic data. Through Aadhaar, Indian citizens are making the country a global pioneer of Digital Public Infrastructure (DPI). 

At the genesis of India’s digital journey, the country was grappling with prohibitive limits to universal financial access among its population, especially among women. In 2009, only 6.3% of aggregate net bank credit was issued to women. Traditionally, they have required a male guarantor to access credit, and have depended on male family members to access government services, including financial assistance. 

These challenges were exacerbated by inefficiencies in government subsidy distribution, with substantial public fund leakage and corruption, preventing government support reaching more peripheralized and vulnerable groups in Indian society. 

In the face of these contexts, the establishment of Aadhaar and the Unique Identification Authority of India (UIDAI) in 2009 was a game changer. In particular, it provided a safe and reliable avenue for financial access to many more Indians, especially marginalized groups. The UIDAI’s DPI architecture overcomes traditionally burdensome and prohibitive administrative burdens to access finance. 

Aadhaar has revolutionized Indian digital government. Image Source

Today, Aadhaar is the world's largest biometric ID system, and its support of India Stack has been the key to the country’s digital success story. Components of the India Stack include the Electronic Know Your Customer (eKYC) and the Unified Payment Interface (UPI)- paperless processing platforms using Aadhaar-based authentication to verify customers during financial transactions.

Banking services witnessed a significant expansion following the full implementation of India Stack, as only one-third of Indians had a bank account prior to its launch. To date, the platform  has conducted 67 billion digital identity verifications, approximately 17.4 Billion USD worth of real-time mobile payments, and 8.6 billion monthly real-time mobile payments. Likewise, the UPI has enabled over 350 banks to transact more than $10 billion. Moreover, the India Stack's impact extends beyond payments and banking, including through initiatives like the Open Network for Digital Commerce (ONDC), providing a democratized marketplace for consumers and small businesses.

Aadhar and India Stack have presented an enormous opportunity to promote prosperity, social security, and resilience in Indian society. In particular, digitization greatly promotes financial inclusion among disadvantaged demographics, especially women,  through providing digital payments and access to banking services in a user-friendly manner with minimal administrative burden, thus overcoming the various gendered barriers to finance. 

Enabling a more resilient and prosperous India

Innovations such as Aadhaar have created a much lower administrative burden for access to finance among women in India. Thanks to their distinct digital ID, women now have easily accessible bank accounts and financing arrangements that had previously been impossible.

In particular, India Stack has revolutionized the operational landscape for female entrepreneurs. Rural FinTech firms such Rang De, a peer-to-peer lending platform, enable the 86% of Indians who are unable to access formal credit to receive loans via an online digital community, a group that disproportionately includes females. Likewise, the Indian government leveraged the India Stack to distribute US$44 billion to women and small farmers in its COVID-19 relief efforts, demonstrating its ability to efficiently manage financial transactions in national crises and overcome traditional gender barriers to finance. 

India Stack's digital marketplaces have also provided female entrepreneurs with an online platform to display their products and services, creating for them a much wider audience. This has been supported by the introduction of eKYC and Aadhaar-based e-signature systems, streamlining business registration processes, and greatly improving the accessibility for women entrepreneurs to establish their ventures. This partially accounts for the fact that India now has over 2,200 funded startups led by women, and that 8% of the MSMEs registered on the UDYAM portal - the digital registration portal of businesses in India - are woman-owned.

What Lies Ahead for a Digital India? 

Despite this optimistic outlook, various challenges remain, including digital infrastructure limitations, security concerns, and a strong digital divide that still plagues India. It’s clear that Aadhaar and India Stack need to be accompanied by digital literacy programs, enhanced security measures, and agent banking models to make them more scalable and equitable. This includes overcoming the remaining gender barriers that prevent the uptake of digitization and digital finance.

Despite promising trends, just 0.3% of India's venture capital funding went to women-led startups in 2021, and women-led businesses face an unmet credit gap of more than $11.4 billion. 

Emerging trends such as blockchain technology, decentralized finance (DeFi) and cryptocurrency can further democratize financial freedom for Indian women. Initiatives leveraging these technologies include the  UNICEF Innovation Fund - focused on blockchain-based startups that facilitate financial inclusion, and utilizing open-source, decentralized marketplaces without traditional burdens. Over 50 percent of the companies involved in the fund are run by women, rendering the fund a potential source of inspiration for India.

India's young and tech-savvy population - combined with strong macroeconomic fundamentals - positions the country for continued digital leadership, if it continues to focus on equitable access. With the right vision, collaboration, and emphasis on security and inclusivity, India can leverage digital banking to drive financial empowerment and prosperity for all its people, including those who have been traditionally left behind.