The gender pay gap among board directors at European financial services companies has reached its most severe level in six years, raising concerns about compensation equity despite improvements in female representation. According to consultancy EY's latest research, female non-executive directors at banks, insurers, and asset managers across Europe earned just 62% of their male counterparts' compensation in 2024, marking a decline from 65% in 2023.

Widening European Disparity

The 2024 figures represent the largest gender pay gap in European financial services since EY began collecting this data in 2019. This deterioration is particularly striking given the simultaneous increase in female board participation across the region.

Despite the widening pay gap, women's representation on European financial services boards has shown steady improvement, increasing by 6 percentage points over four years to reach 41% of non-executive positions in 2024.

Regional Variations in Pay Equity

The situation varies dramatically across global regions, with North America demonstrating significantly better pay parity. Female directors in North America earned 94% of their male counterparts' compensation in 2024, maintaining the same level as the previous year.

North American women also achieved notable representation gains, comprising 38% of non-executive roles in 2024, up 6 percentage points from 2020 levels.

Global Compensation Analysis

At the global level, the gender pay disparity in financial services boards remains substantial and persistent. Female board directors received average compensation of $252,672.00 compared to $325,402.00 for their male counterparts in 2024, representing a 22% pay gap that has remained largely unchanged over the past five years.

"The widening gender pay gap in Europe's largest financial firms is a stark reminder that greater representation does not directly translate into pay parity," said Omar Ali, EY global financial services leader. "While board-level gender diversity is rising, it is at a slow pace and tapers with age."

Age-Related Pay Premiums

The research revealed additional disparities related to age, with older non-executives commanding significant pay premiums across regions:

• Europe: 24% premium for directors aged 70 and over
• Asia Pacific: 43% premium for senior directors
• US and Canada: 8% premium, the smallest regional gap

Ali noted that while valuing experience is understandable, financial services firms increasingly need digital expertise, skills that may also reside with younger candidates.

Technology Skills as Opportunity

Separate research by 25X25, a London-based women's leadership advocacy group, suggests that the financial sector's growing need for technology and transformation skills could benefit female representation. The organization found that women comprise just over half of current board members with relevant digital backgrounds.

"An investment in this skillset is therefore likely to also result in better executive gender-balance," said Tara Cemlyn-Jones, founder and CEO of 25X25.

The findings highlight the complex relationship between representation and compensation equity, demonstrating that achieving numerical parity on boards does not automatically translate to equal pay across the financial services industry.

Arohan Financial Services, a micro-finance institution backed by Aavishkaar Group, is preparing for a significant milestone with plans to file its Draft Red Herring Prospectus (DRHP) with SEBI for a ₹1,500 crore initial public offering by early March. Managing Director Manoj Nambiar shared details about the IPO structure and the company's strategic outlook in a recent interaction.

IPO Structure and Timeline

The proposed IPO will follow a balanced approach between fresh capital raising and investor exits. The company has structured the offering to maintain promoter confidence while providing liquidity to early investors.

Nambiar emphasized that promoters will not sell shares in the proposed IPO, demonstrating their continued conviction in the business. However, legacy investors who joined the company between 2008-2017 may seek partial exits through the secondary component.

Industry Challenges and Regulatory Environment

The MFI sector has experienced significant turbulence, with Arohan's position shifting from fifth-largest NBFC-MFI in December 2023 to ninth or tenth position currently. This change reflects the company's conservative approach while competitors pursued aggressive growth strategies.

Nambiar supports the continuation of MFIN guidelines, noting that rapid industry growth coupled with relaxed underwriting standards led to sector stress. He highlighted that large public sector banks have ceased lending to MFIs for over a year, with private sector banks now providing primary support to the sector.

Financial Performance and Growth Targets

Arohan Financial Services has maintained profitability across credit cycles, except for FY21, demonstrating resilient business fundamentals. The company's asset quality metrics reflect strong underwriting and collection practices.

Technology and Operational Excellence

The company has invested heavily in technology infrastructure, implementing artificial intelligence across its lending operations. This technological advancement spans the entire customer lifecycle, from initial hiring and customer sourcing to risk-based pricing, account management, collections, and recovery processes.

Arohan was among the first MFIs to establish a dedicated recovery vertical and actively utilizes Lok Adalats for debt resolution. These operational strengths have contributed to maintaining asset quality metrics significantly below industry averages.

Strategic Outlook

Under its Vision 2030 plan, Arohan Financial Services aims to return to FY24 profitability levels by the next fiscal year. The company currently has no immediate plans to convert to a small finance bank, focusing instead on scaling its existing MFI operations to achieve optimal size before considering structural changes.

The IPO represents a crucial step in Arohan's growth strategy, providing capital for expansion while maintaining the promoter group's long-term commitment to the business. With strong governance frameworks and technology-driven operations, the company is positioned to navigate the evolving MFI landscape while pursuing its ambitious growth targets.