India is likely have around 9 lakh new women entrepreneurs by 2025 in food and education sectors combined where women are present in larger numbers as employees as well as entrepreneurs, according to a report on women entrepreneurship in urban India by Global Alliance for Mass Entrepreneurship (GAME) and Facebook. Food and Education sectors have emerged as the top two sectors that are amenable to mass entrepreneurship. In fact, textile, food, personal services and education together account for 65% of women-owned SMBs and 58% of female employment amongst SMBs in urban India.
The importance of women entrepreneurship has also caught the government’s attention as it announced keeping 10% of SIDBI’s Rs 10,000 crore Fund of Funds for startups (FFS) reserved for women-led startups. The number of women-run ventures, however, remains small. According to the Sixth Economic Census (2014), only 14% of Indian women run or owned SMBs in India. Importantly, women owners accounted for only 11% of the total MSME business owners in India, according to Mastercard Index of Women Entrepreneurs 2018.
Challenges Women Face to Start Businesses
As with the rest of the MSME sector, access to finance is the most critical barrier to entry and business growth for women-owned MSMEs. According to an IFC report, lending to women-owned MSMEs as a separate segment is still unexplored in India due to lack of segmental focus on women. This unfortunately is not just an anomaly but even inappropriate considering that a research by Goldman Sachs has shown that women are more likely to use their earnings and increased bargaining power to buy goods and services which, in turn, creates a productive cycle that fuels economic growth. If we recognize the implications of this research, why are there still so few women-owned MSMEs in India? What can be done to help unlock the full potential of female entrepreneurship throughout the nation?
Women entrepreneurs indicate that owning and operating a business gives them confidence, a sense of independence, greater, social recognition and increased financial stability for their families. In terms of business financing, their needs are quite similar to any other MSME: larger loan amounts with lower interest rates and fees, longer loan tenures, hassle-free loan processing, and quick disbursement. Yet the women report experiencing unique challenges and biases compared to male counterparts when trying to access loans to fund their young businesses:
Unfavorable perception of control: financial institutions approached doubted who actually runs the enterprise – the woman or her husband.
Negative perception of stability: financial institutions view single women to be of higher risk as they are expected to move residences once married and there’s a perception that women-owned businesses shut down more easily when faced with challenges.
Lack of adequate collateral: access to collateral is difficult for women entrepreneurs due to legal obstacles such as unfavorable inheritance and property rights. Often property is in the man’s name, or the women have to ask permission from family members to provide property as collateral.
Cumbersome and inflexible processes to access the loan: some institutions require a spouse to become the co-borrower and loan documentation requirements are lengthy with long processing times. Once married, any change to a woman’s name must be reflected in all documentation.
Schemes to Boost Women MSMEs
There is some light at the end of the tunnel too. Both Central and state governments have launched financial schemes for micro units, which could go a long way in boosting women entrepreneurship.
Mudra Yojana Scheme: This general government scheme for small units is also applicable to women who want to start a small enterprise such as a beauty parlour, tuition center, tailoring unit, etc. It is also useful for a group of women who want to startup together. Loans from Rs 50,000 onwards and up to Rs 50 lakh are sanctioned under this scheme. Collateral and guarantors are required only if the loan amount exceeds Rs 10 lakh. There are three plans under this: Shishu plan (loans upto Rs 50,000 for new businesses), Kishor plan (loans between Rs 50,000 and Rs 5 lakh for well-established enterprises), and Tarun plan (loans between Rs 5 lakh and Rs 10 lakh for business expansion).
TREAD (Trade Related Entrepreneurship Assistance and Development) Scheme: This scheme aims to empower women by providing credit to projects, conducting specific training and counseling, and eliciting information on related needs. The scheme provides for a government grant of up to 30 percent of the total project cost as appraised by lending institutions. These institutions would finance the other 70 percent.
Mahila Udyam Nidhi Scheme: Offered by SIDBI, this scheme provides financial assistance of up to Rs 10 lakh to set up a new small-scale venture. It also assists with upgrading and modernisation of existing projects. The loans are to be repaid within 10 years, and this includes a five year moratorium period. Further, interest rates on these loans can vary according to market rates.
Annapurna Scheme: This scheme applies to women entrepreneurs who have started a food catering unit. They can avail a loan of up to Rs 50,000 to purchase kitchen equipment such as utensils and water filters. A guarantor is required to secure the loan. After securing the loan, it can be repaid in 36 installments. Further, interest rates under this scheme as per prevailing rates and assets will be taken as collateral by the concerned bank.
Stree Shakti Package For Women Entrepreneurs: It is offered to women who have majority ownership (over 50 percent) in a small business. The women also need to be enrolled in the Entrepreneurship Development Programmes (EDP) organised by their respective state agency. Under the scheme, an interest concession of 0.05 percent can be availed on loans above Rs 2 lakh.
Bhartiya Mahila Business Bank Loan: This scheme involves a loan of up to Rs 20 crore for women business owners of manufacturing enterprises. Under the Credit Guarantee Fund Trust for Micro and Small Enterprises, there is no need for collateral for loans up to Rs 1 crore. The loans under this bank loan scheme are to be repaid in seven years. The scheme was implemented by Bhartiya Mahila Bank which was merged with State Bank of India in 2017.
Dena Shakti Scheme: This scheme provides loans up to Rs 20 lakh for women entrepreneurs in agriculture, manufacturing, micro-credit, retail stores, or similar small enterprises. There is a concession of 0.25 percent on rate of interest. Under the scheme, loans up to Rs 50,000 are offered under the microcredit category.