Credit and Finance for MSMEs: Women-owned micro, small and medium enterprises (MSMEs) account for only around 20 per cent or roughly 1.23 crore units out of India’s overall base of over 6 crore proprietary MSMEs. The share has crawled from only 13.72 per cent back in FY11. The growth in the volume of women MSMEs in the country has poor access to affordable credit as one of the major deterrents. While the government has made interventions for women to get credit access for starting their businesses, there has been no dedicated central government scheme in the country for existing women MSMEs at the growth stage seeking collateral-free capital to expand their business.
This is the challenge women entrepreneurs like Gurugram-based Harjinder Kaur Talwar have often come across. Talwar has been running her company Comvision India since 1995 which currently provides parking and traffic management solutions. So far, her collateral-based bank credit exposure stands at around Rs 15 crore.
“We have been giving collateral after collateral. It is very tough to raise credit from banks without collateral. Women need capital to scale up but they don’t have enough collateral in their name. It is usually in the husband’s name. To solve this problem, there is no credit scheme by the government for women entrepreneurs,” Talwar told Financial Express Online as she indicated towards the concept of property inheritance in India that customarily belongs to male members of a family. This usually berefts women of assets that can be utilised as collateral.
Comments from the MSME Ministry and Finance Ministry for this story weren’t available by the time of publishing.
However, experts maintained that the government’s intent in providing collateral-free credit schemes is to enable entrepreneurship and help in setting up businesses instead of gender-based backing once the business has already achieved some scale.
“As far as government schemes for funding are concerned, they are gender agnostic. This means that once you are already in business and not starting up then performance should be the basis for accessing additional credit instead of gender,” said Ashok Saigal, Ashok Saigal, MD, Frontier Technologies and Co-Chairman, CII National MSME Council told Financial Express Online.
Anil Bhardwaj, Secretary-General at MSME body Federation of Indian Micro Small & Medium Enterprises (FISME) believed once the enterprise grows up, there is no specific credit scheme for women because there are no women-specific problems encountered. “Gender-based discrimination is not generally the case today. Once growth is there, women entrepreneurs can equally tap bank credit. Having said this, there is room for women-centric funds in India,” he told Financial Express Online.
However, women entrepreneurs are of the opinion that gender-based biases persist and that lenders are sometimes conservative in supporting women-led units. “Unless the government takes a strict approach to lend to women MSMEs in a stipulated time, lending to women entrepreneurs won’t enhance,” said Rajni Aggarwal, President of the advocacy group for women entrepreneurs — Federation of Indian Women Entrepreneurs had told Financial Express Online.
Moreover think tanks also note that there is unconscious gender bias holding women entrepreneurs back in India. “Unconscious gender bias has been found to be a key factor impeding the progress of women entrepreneurs,” according to the independent global think tank Observer Research Foundation (ORF).
According to a study published by ORF in September 2019, while entrepreneurship is an inherently risky undertaking, women are often easily assumed to be less willing to take risks. “However, if women do approach investors, they are perceived differently than men, and investors have been found to prefer pitches presented by men as compared to those by women, despite identical content.”
Subscribe to Financial Express SME newsletter now: Your weekly dose of news, views, and updates from the world of micro, small, and medium enterprises
“Further difficulties with procuring funding occur due to the fact that Indian women rarely own property, which can be used as collateral for loans. Moreover, about 79 per cent of women-owned ventures are self-financed, but families are often hesitant to support their daughters’ entrepreneurial ventures financially,” the study by Sabrina Korreck, Former Senior Fellow at ORF noted.
The credit gap for women-owned 15 million MSMEs stands at $158 billion (around Rs 12 lakh crore) with 90 per cent of such women entrepreneurs relying on informal sources of financing, according to the data from International Finance Corporation (IFC). Overall, as per World Bank estimates, the credit gap for Indian MSMEs is at $380 billion (nearly Rs 30 lakh crore).
However, the institutional problem faced by women entrepreneurs at growth stages with respect to the lack of collaterals in their own names is one that needs to be resolved on priority, experts noted. For this, cash flow-based credit disbursements have to be the way out.
“To get credit for business expansion, we are pushing for the fact that anybody having an existing relationship with a lender for a minimum period of five years, should be able to raise finance based on cash flow performance. This would help growing women entrepreneurs to not get constrained by collaterals,” said Saigal.
The Reserve Bank of India (RBI) has also been backing the cash flow approach to boost credit to small businesses. “To improve the credit to gross domestic product (GDP) ratio, access to credit and cost of credit need to be addressed by lesser reliance on collateral security and greater cash-flow based lending,” governor Shaktikanta Das had said earlier at a webinar on investor education organised by National Council of Applied Economic Research (NCAER).
Currently, Stand-Up India is the only central government scheme, launched by Prime Minister Narendra Modi in April 2016, focusing on women entrepreneurs apart from scheduled caste and scheduled tribe entrepreneurs looking for setting up a greenfield enterprise (first-time venture to be set up by the beneficiary). The credit support ranges from Rs 10 lakh to Rs 1 crore to at least one SC/ST borrower and at least one woman borrower per bank branch of scheduled commercial banks. This indicates that entrepreneurs launching their second or third venture wouldn’t be eligible for the scheme.
Moreover, “if one branch has given loan to one SC/ST and women entrepreneur then it doesn’t have to give more loans under the scheme. To help more such borrowers benefit, the scheme should mandate a certain number of loans to be disbursed at least once or twice a year, etc.,” Mukesh Mohan Gupta who heads MSME body Chamber of Indian Micro, Small & Medium Enterprises (CIMSME) told Financial Express Online.
There are a few other schemes as well for women such as Mahila Udyam Nidhi Scheme, Stree Shakti Package for Women Entrepreneurs, Dena Shakti Scheme, Udyogini Scheme, Cent Kalyani Scheme. However, most of them have a credit limit up to around Rs 10 lakh (in the case of Mahila Udyam Nidhi Scheme) or less (Rs 3 lakh in Udyogini scheme) to cater to micro or individual units. In terms of a gender-agnostic collateral-free scheme, the government’s credit guarantee fund trust for micro and small enterprises (CGTMSE) programme offers guarantee cover to lenders for collateral-free lending up to Rs 2 crore to micro and small enterprises. Over 7 lakh guarantees for Rs 55,217.74 crore were approved in FY22 — second highest in eight years, according to the data from MSME Dashboard.
