“Invisible bias means women entrepreneurs are more likely to delay or reject loan applications”

By HP Singh

Credit and financing for MSMEs: Women in the MSME sector have boldly expanded their presence and changed the dynamic of entrepreneurship. Not only in business, but women have raised the bar in various sectors of the industry including legal, medical, bureaucracy, defense and media. Unrestricted by caste, religion, or economic background, women have bravely entered all forms of economic activity. They write beautiful and unflinching stories about venturing into entrepreneurship, growing their businesses and caring for their families.

Contribution of women-led MSMEs

Coming up with an idea is one thing, but implementing it, analyzing the market and adapting to the changing needs of this volatile, uncertain, complex and ambiguous business world is an exhausting but rewarding task. While these are the challenges anyone starting their startup faces, women also struggle with the gender bias in the system. Not only are women up for the challenge of starting their small businesses, but they also contribute about 1.23 million units of MSMEs in India. These women are fiercely pushing into the business sector, breaking down the barriers of gender differences and challenging stereotypes. Female-led MSMEs in India increased by around 75 percent on the Udyam portal in FY22 compared to FY21. Female managers speak out vehemently against the prejudices and repeatedly prove themselves to be pioneers in various areas. They were an important part of our nation’s economic development.

While women who run micro, small and medium-sized enterprises (MSMEs) work diligently day and night to support themselves, finances are proving to be an enormous challenge when trying to expand and grow. India’s MSME business accounted for around Rs 6 crore. But women made up just over 20 percent of that business. Compared to MSME Ministry reports for fiscal year 2011, women-owned businesses have increased by just 7 percent over the past decade. Many factors contribute to the barriers that prevent women entrepreneurs and MSMEs from growing. One of the biggest setbacks is the credit system for loans in India.

Invisible bias

Currently, the credit system established by the government in our country is highly dependent on collateral. This poses an incredible challenge for women entrepreneurs in our country. In a patriarchal society, most acceptable assets are held under the men’s name within the family. Homes and cars are registered under the father’s or husband’s name. Additionally, due to the patriarchal mindset of families, families often do not want to provide support to the women in their families because they believe they may fail. In many parts of India, particularly in rural and semi-urban areas, the notion that women are better off within the four walls of a home still persists. Because of this, there is a gap between the goals many women want to achieve and the resources available to them to do so.

Even if women somehow manage to provide collateral for their loans, the struggle does not end there. Women running businesses have equal access to apply for credit, but there are a number of issues they face during the process. There is an invisible bias within society and the credit system that makes applications from women more likely to be delayed or rejected. Even if a man and woman submit the same loan application with similar results and presentations, the man is more likely to receive the loan. This is because of the gender inequality that still exists in our country. Whether knowingly or unknowingly, women are not considered good enough to run businesses, despite having proven themselves time and time again.

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These women work tirelessly to not only keep their businesses running, but to hire others as well. They are more than capable of growing their startups and earning a steady income. However, many women in our country cannot achieve their dreams due to a lack of financial support. Many women are also having to give up their businesses because they lack the funding that would allow them to thrive. These entrepreneurs would not only increase competition in the country for quality and value-oriented products and services, but also contribute to the development and growth of our country. While they provide for their families and raise living standards, they also increase the nation’s economic growth. With the empowerment of these women, our future generations would reap the rewards of their boldness and growth.

access to credit

For this reason, the government urgently needs to review access to credit for women in the MSME sector. Although the microfinance sector has recognized these issues and many in the industry are struggling fiercely to bring women in rural areas access to microcredit, the government needs to step up and make microcredit loans more accessible. With government support and the right initiatives, the microfinance and banking sectors will be able to provide financial support to these women and their businesses. This will further strengthen India’s financial ecosystem and raise the bar for business.

Although certain initiatives have been taken, there are still limitations and restrictions on them. The government needs to increase funding for women entrepreneurs. If the loans can be made based on cash flow services instead of collateral, this will greatly benefit the MSME sector. The government must recognize the need for unsecured loans for women and recognize the efforts of institutions in the banking sector to try to push this forward.

By freeing up the need for collateral and fostering an ecosystem where cash flow performance is acceptable for lending, women entrepreneurs could receive a huge financial boost. Empowering women is the need of the hour and they must have access to credit based on their growth within the company, regardless of their economic background and gender. By launching no-deposit loan initiatives, India would effectively tackle gender disparity in the country and take another step towards equality. This will ensure equal opportunities for everyone in the MSME sector and help raise the standard of living of different families, thus contributing to our nation’s GDP growth.

HP Singh, Chairman and Managing Director, Satin Creditcare Network Limited. The views expressed are those of the author.


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