Moving ahead requires collective action, strategic initiatives and innovative financing to support women-led ventures and attain true equality
Is male business acumen inherently superior? Does a male entrepreneur guarantee success? Are strategic thinking and innovation exclusive to men? Does the Y chromosome come with an entrepreneurship manual? Are financial avenues genuinely gender-neutral, or do they harbour hidden biases? These questions arise, as only 20% of businesses in India are owned by women. While India's startup landscape flourishes, women entrepreneurs, especially in SME financing, encounter significant challenges.
A recently conducted study by Villgro & LEAD titled ‘Beyond the Numbers: Decoding the Gender Gap in Financing SMEs in India’, focused on understanding SMEs with a credit requirement of over 10 lakhs. The study delves deep into the intricacies of the financing challenges, highlighting gender disparities and recommending potential solutions.
While access to finance affects both genders significantly, the study unveils the added barriers and biases women entrepreneurs confront due to their gender. Though the financing gap and collateral requirements don't significantly differ by gender, a notable gap emerges in turnaround time (TAT) for credit applications. More than half of the women had a TAT of over 30 days compared to a little over a quarter of the men. Additionally, women-led businesses negotiated three times more than men over interest rates, processing fees, prepayment charges, etc. The study highlights the business case for lending to women. Women have a lower NPA rate (4% as opposed to the 6.2% average NPA in public sector banks) and show higher customer loyalty due to fewer banking relationships than men. Yet, many female participants were required to have a male co-signer for loans and 46% of the women respondents felt the banks demanded more documents from women than men.
To bridge the gender financing gap, the Indian government and partners launched initiatives empowering women entrepreneurs. The StandUp India scheme provides loans (INR 10 lakh to Rs. 1 crore) to foster entrepreneurship, especially for women. NITI Aayog’s Women Entrepreneurship Platform (WEP) offers knowledge sharing, capacity building, funding access, and partnerships with private players like DeAsra, NASSCOM Foundation, and CISCO Systems. SIDBI introduced financial products like Mahila Udyam Nidhi (MUN) for collateral-free loans, Mahila Vikas Nidhi (MVN) for expansion, and Mahila Udyam Nidhi Scheme (MUNS) for micro and small enterprises, driving economic growth and women's empowerment. Central Bank of India's Women Entrepreneurship Cell provides gender-specific financial products and promotes best practices, expanding across sectors like MSME, agriculture, and retail in alignment with government priorities.
Despite Government efforts, a significant credit gap of INR 1.95 lakh crores remains for women borrowers. This untapped market holds great potential for financial institutions. To address this, a focused multi-faceted strategy involving various stakeholders is crucial. The study emphasizes demand-side analysis, supply-side integration, and financial institution recommendations. These suggestions are categorized into three key areas: program, process, and product. Program-Level Solutions: Aggregators and Facilitation Agencies
Entrepreneurial networks and memberships are crucial for boosting confidence, learning, trend awareness, and professional connections. They also foster collaborations and business growth.
A study by Women’s World Banking (WWB) 2020 suggests multi-level interventions for bank managers, including customer relationship training. This targets subconscious bias, expedites loan processing, reduces bank visits, and ultimately streamlines the loan process, promoting greater female applicant participation. Product-Level Solutions: Innovative Instruments for Financing
The report reveals that out of 75 women-led and 96 men-led businesses seeking credit in the past 5 years, 40% and 43% respectively didn't apply, fearing rejection or not meeting credit criteria. Financial institutions can enhance loan applications by implementing online eligibility checks, raising product awareness, and reducing processing time.
To enhance finance for women-led SMEs, tailored blended finance approaches are valuable. To improve Program Intervention and Product Development, regulators such as RBI and IBA must prioritise policies for women-centric DSAs, crucial as front-line guides in loan processes. Simultaneously, establishing dedicated priority sector lending targets for women-led MSMEs and adjusting credit limits beyond INR 1 lakh is urgently needed to better address their needs. The financing gap is more than a number; it stems from intertwined sociocultural norms, institutional frameworks, and biases.
(The writer is a charted Accountant, and CFA Lead, Impact Finance, Villgro, views are personal)