Why role of institutional backing and credit in empowering women-owned enterprises is important

Women entrepreneurship can potentially transform employment in India and has the scope of generating 150 –170 million new jobs by the year 2030, which is more than 25 percent of the jobs required for the entire working-age population.

As a result, women entrepreneurship could play a large role in attaining the prime minister’s vision of a 5 trillion-dollar Indian economy. However, without institutional backing, access to credit and other economic tools, holistic economic inclusion for women appears to be difficult to achieve. As it stands, women in India continue to earn meagre incomes and deal with relatively low standards of living. To bridge the gap of access to credit and lending facilities, microfinance and other lending tools are being adopted by women entrepreneurs to create better financial opportunities for women-owned enterprises.

Take the example of any women entrepreneur; a local self-help group (SHG) usually supports them by providing training along with access to raw materials and markets where they can sell their products. Yet, most often, an exhaustive market analysis is not conducted. This inevitably causes the market and potential buyers to shrink, raw materials to become costlier, and the enterprise to become excessively labour-intensive. In essence, the methods to ensure scale and sustainability have not been properly explored or utilised.

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The term microfinance includes the concept of ‘micro-loans’ or loans of a nominal amount i.e., loans of approximately ₹1-2 lakhs per person. Microfinance can help to provide for the financial needs of women entrepreneurs, and thereby safeguard their ambitions to commence, manage and scale their own enterprises. Moreover, microfinance has the potential to help boost the lives and livelihoods of women from rural and semi-urban parts of the country. The structuring of these loans, and their quick disbursement and repayment timelines have benefitted many budding entrepreneurs from both rural and semi-urban India. The success of micro-finance stems from the fact that no guarantee/collateral is needed to secure these loans.

This is especially crucial in the Indian context, where resources such as property/land that could serve as a collateral to procure a loan is largely owned by only male members of families. Additionally, microfinance creates the option for a woman entrepreneur to avail a loan even if she is unable to provide a guarantee for the same.

A very successful example of microfinancing in India is that of ‘Kudumbashree’, Kerala’s Poverty Eradication Mission (launched in 1998). Kudumbashree brings women together to advocate for their rights and empower their peers by working on a variety of issues such as health, nutrition and agriculture, through which the women generate income and thus develop the capacity to seek microcredit.

Constantly enhancing the coverage and linkages to microcredit markets ensures that they are more accessible and friendly to the beneficiaries thereof; and enables issues of information asymmetry, lack of credit histories, an absence of formal documentation and perceptions of lenders to be dealt with effectively. This is particularly important in the context of the pandemic and the government-imposed lockdowns, due to which small and micro enterprises have suffered financially.

The data from the Reserve Bank of India (RBI) reflected that the credit growth in micro and small industries decelerated from 1.7 percent in 2020 to 0.5 percent in March 2021. The aforementioned clearly shows that while progress has been made to create financial linkages, availing of credit continues to be a pain point that has been further exacerbated by the COVID-19 pandemic, especially for Micro, Small and Medium Enterprises.

To address this gap of institutional support and access to credit facilities, the Government of India has introduced various schemes such as the National Mission for Empowerment of Women, the Prime Minister‘s Rojgar Yojana (PMRY), Entrepreneurial Development Programmes (EDPs), Women's Development Corporations (WDCs), NABARD’S SHG-Bank Linkage Programme, Cent Kalyani Scheme, Bharatiya Mahila Bank, Stree Shakti Package, Maahila Udyam Nidhi Scheme, MUDRA Yojana, Udyogini and Oriental Bank Mahila Vikas Yojana, in order to alleviate financial distress or limitations for women entrepreneurs. Despite the progress by the government to create better credit linkages, there is still a pressing need to inform and capacitate women entrepreneurs from semi-urban and rural areas.

While the development of rural women entrepreneurs remains a focal point of government programmes, emphasising on the development of affordable microfinance loans for borrowers with limited economic mobility is the need of the hour. Women entrepreneurs belonging to low-income groups find it difficult to repay the loans even if they have low interest rates, due lack of awareness, guidance or gender-specific solutions.

Though microfinance institutions and self-help groups are expanding their coverage area and commitment to aiding women entrepreneurs, attention must also be given to proper structuring, access and viability of financial services, and the advent of micro financial institutions. Accordingly, collaborations and partnerships must adopt a multidisciplinary approach that can be implemented through capacity building, sensitization, mentorship, corporate outreach, government aid and stakeholder outreach, so as to positively impact the entire ecosystem in a holistic manner.

Vidya Shah is Executive Chairperson, EdelGive Foundation and Dr Sangita Reddy, Immediate Past president FICCI and Joint Managing Director, Apollo Hospital Enterprise Ltd.