When running an MSME in India, securing adequate and timely finance and credit emerges as the most significant challenge. The struggle is even harder for the country’s 3.01 million women entrepreneurs, as they struggle against both patriarchal biases as well as the inherent difficulty of MSME business.
In addition to lending institutions’ unwillingness to take a risk with MSMEs, they are also skeptical of women-owned businesses. These businesses tend to be micro-businesses (investment does not exceed Rs 25 lakh in the manufacturing sector or Rs 10 lakh in the service sector). Banks see them as high-risk and are leery of extending them credit.
There has been a concerted effort from the government to enable women MSE entrepreneurs to avail credit. Along with SIDBI, the government set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which was intended to operationalise the Credit Guarantee Scheme. The scheme provides for eligible lending institutions to extend collateral-free credit (term loan and/or working capital) to new and existing micro and small enterprises up to Rs 200 lakh per borrowing unit. The guarantee cover provided for MSEs owned or operated by women is 80 percent of the credit facility. Additionally, the composite Annual Guarantee Fee for women-owned MSEs is 0.75 percent p.a if the credit facility sanctioned is Rs 5 lakh or below, and 0.85 percent p.a for credit facility above Rs 5 lakh up to Rs 200 lakh.
However, banks and lending institutions are reluctant to sanction loans to MSEs under the CGTMSE, since lack of collateral makes recovery difficult if the borrower defaults. The scheme does have provisions for government reimbursement of bad loans, but that is preceded by an investigation to check for lapses; if the results show that accountability for the default lies with the bank, the government will not reimburse the amount. As a result, there is no practical guarantee that the lending institutions will recover the principal, leading to an unenthusiastic reception of the scheme on their part. They continue to adhere to their previous lending practices regarding MSMEs. Women entrepreneurs, therefore, cannot always reap the benefits of the scheme, even when it contains significant concessions for them.
Lack of Awareness
Another retarding factor is the lack of awareness on the part of women entrepreneurs. According to an IFC report, only 17 per cent of women entrepreneurs are aware of schemes by the government and financial institutions. Furthermore, women’s property rights are not respected in many parts of India, leaving them with no collateral to offer banks and NBFCs to secure a conventional loan.
There are government schemes that target women entrepreneurs specifically, in a bid to make securing finance easier for them. The Mudra Yojana is a general plan that sanctions loans starting from Rs 50,000 upwards, to Rs 50 lakh. Collateral is required only if the loan amount exceeds Rs 10 lakh. Other plans include TREAD (Trade Related Entrepreneurship Assistance and Development) scheme; SIDBI’s Mahila Udyam Nidhi Scheme; the Stree Shakti Package for Women Entrepreneurs; and the Bhartiya Mahila Bank Business Loan, among others.
Private Bank Outreach
Apart from their reluctance to provide credit under government schemes, there is a distinct absence of schemes from private banks that address the challenges that women entrepreneurs face: gender bias, lack of access to financial information, red-tape, need for small ticket size loans, and lack of collateral, among others. Lending institutions, particularly in the private sector, are uninterested in reaching out to female MSME owners to educate, communicate, and provide solutions in the form of credit or other financial instruments. Such outreach would go a considerable way towards tapping the immense revenue potential of the female workforce, as well as providing a vital boost to the MSME sector in India.
Of the private banks, ICICI Bank and HDFC Bank are two that have schemes for women entrepreneurs. ICICI Bank under the Stand Up India Scheme grants loans between Rs 10 lakh and Rs 1 crore to women entrepreneurs setting up a first-time venture; collateral/guarantors are as specified under the Credit Guarantee Fund Scheme for Stand Up India Loans (CGFSIL). HDFC Bank announced a tie-up with Common Services Centre (CSC) earlier this year to launch a ‘Small Business MoneyBack’ credit card. The card was designed specifically for CSC’s Village-Level Entrepreneurs (VLEs) and their customers, giving them easy access to credit for day-to-day business expenses. Many small businesses in villages are run by local women, which makes this card extremely valuable to them.
India has the third-highest gender gap in entrepreneurship in the world. If acquiring credit and finance were streamlined and made easier and impartial, that gap would be swiftly bridged. Both the government and private banks need to do more to reach women entrepreneurs. Women, in turn, must take advantage of the digitisation sweeping the country and look for information on their business requirements and what they have to do to meet those requirements. Only with a concerted effort from both sides can progress be made on all fronts.
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