Credit and Finance for MSMEs: More often than not women entrepreneurs find it tougher to start and run a business as compared to men. This experience ends up dissuading women from entering the fray.
By Piyush Khaitan
Credit and Finance for MSMEs: As a nation, India has continuously faced a challenge of equitably distributing the fruits of its growth story among men and women. It has been seen, more often than not, that women entrepreneurs find it tougher to start and run a business as compared to men. This experience ends up dissuading women from entering the fray and leads to a vicious cycle – and the only way to break it is to welcome women entrepreneurs and working with them to improve their livelihoods, rather than just paying lip service.
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In fact, this is not a problem specific to India. Women across the globe are often faced with challenges in accessing finance, such as availing a business loan and lower credit card limit. This problem is further complicated by the current credit crunch in the MSME landscape – which includes many emerging women entrepreneurs who are only just starting on their entrepreneurial journeys. India’s small and medium businesses form the backbone of the economy, employing more than 50 million people and contributing almost one-third of the GDP. A lack of formal financing for their assets and working capital has been the biggest bottleneck in the growth of these sectors.
The main factors that continue to create a roadblock to women entrepreneurs from finding access to funding and capital for their businesses are first, financial institutions. They have historically been extremely cautious in extending credit to businesswomen as they still consider women entrepreneurs to be risky borrowers and aren’t confident in their ability to succeed. Second, the traditional mindset of lending driven by societal biases. When it comes to risk assessment, a female applicant is typically asked for a male guarantor, be it husband or brother or a male member in the family.
Hence, the norms are tightened for women borrowers and a certain kind of discrimination takes place when it comes to accessing capital from legacy institutions. Indeed, some new-age lenders and NBFCs also indulge in similar practices in the guise of risk management and end up failing the same women whose success could turnaround the future of households, communities and the whole country.
Being a small business owner means contending with numerous financial challenges. Besides the obvious expenses of procuring goods, securing working space, hiring workers and paying taxes, women-owned businesses must also think about license and permit costs, utility bills, services like phone and Internet, repairs and maintenance, obtaining equipment and much more. Even the most successful small businesses can find themselves in need of extra funds from time to time, which is why it’s important for female owners to consider how different business loans for women can serve their needs. Choosing the right loan can be just as important as receiving money in the first place, as factors like repayment options and loan costs will directly impact a business’s bottom line. For women entrepreneurs who want to transform their vision for business success into a reality, working with a lender who understands their needs is essential.
One of the ways in which the situation is improving for women is through the entry of new-age lending entities that have changed the paradigm by not only using a non-discriminatory lending process but by also actively supporting women and their businesses. For instance, consider the case of Jayanthi Kathale who runs a successful global Maharashtrian food venture. Kathale has a vision of opening 5,000 outlets of her food chain called PurnaBrahma. Through the simplified lending process, Kathale was able to secure funding using non-traditional data points such as cash flows and sales data using bank statements. With hassle-free documentation, seamless verification, loan processing directly to account and convenient methods of repayment, Kathale has found a partner in new-age lending partners.
Such cases aren’t an exception to the rule but the new reality of digital lending. India has been ranked 52nd on the Mastercard Index for Women Entrepreneurs 2018 on a list of 57 countries. Even though societal attitudes are gradually changing, with more and more women choosing to startup, the ease of doing business also needs to improve to have more women leaders at the forefront. The contribution of women-run medium-sized businesses in the wave of digitization is expected to be high due to their growing scale.
Digital data, combined with GST returns data, has the potential to unlock this unserved MSME segment. The availability of equitable finance to women will improve livelihoods on the ground and build stronger economic structures which will keep India’s growth story in good stead. New-age lenders are creating a strong positive social impact and it is time for the rest of the financial world to catch up to the new reality where women will lead from the front.
(Piyush Khaitan is the Managing Director at NeoGrowth Credit. Views expressed are the author’s own.)