Clipped from: https://www.thehindubusinessline.com/todays-paper/tp-opinion/funding-women-led-msmes/article65294537.ece
Digital lending has eased funds flow but more needs to be done
A study by the International Monetary Fund (IMF) and Goldman Sachs revealed that the disparity between male and female labour force participation has a huge impact on a country’s economic growth. A McKinsey Global Institute report, too, said that closing the workforce gender gap in India could add $700 billion of additional GDP by 2025. Thus, the potential of women entrepreneurs in the MSME sector needs to be tapped.
The Annual MSME Report of 2020-21 reveals that out of the over 60 million MSMEs registered in India, only 20 per cent are women-owned. Women MSMEs collectively contribute 3.09 per cent of industrial output and employ 10 per cent of the total workers.
India’s women entrepreneurs also appear to have been particularly hit hard by the Covid pandemic compared with the countries in this region, with two-thirds of women attributing recent business closures. Access to funds is the most serious challenge women MSME owners face. Women often face more restrictive collateral requirements, shorter maturity of loans, and higher interest rates than men.
Funding hurdles
The ‘What Women MSMEs Want’ survey showed that a majority of the respondents felt that raising capital remains the biggest challenge. The entrepreneurs said they still rely on banks; but years of business operation, insufficient credit history, and lack of property ownership are the big hurdles.
Further, a large number of women entrepreneurs believe that having a male co-founder makes running the business easier. There is an innate gender mistrust in the case of women entrepreneurs even though their credit profiles are better.
Numerous studies indicate that the rejection rate of loan applications from women entrepreneurs is higher in the developing world.
The survey also found that one-third of the entrepreneurs were homemakers before they started a business. In order to boost the entrepreneurial spirit of Indian women, the onus falls on the larger ecosystem to ensure that they have adequate means to run their business.
Women MSMEs face a finance gap of $158 billion and largely rely on informal sources. While at individual and institutional levels, effort has been taken to enable credit to them, the execution and impact have been fragmented.
The reasons range from the outlook towards women entrepreneurs to the lack of immovable and movable property due to the gender-asset gap, to the lack of appropriate products and processes for women-owned businesses.
Additionally, there has been little effort to simplify credit/lending processes or adequately communicate these processes to women entrepreneurs. Another major factor is that women entrepreneurs are generally low-ticket-size, which adds to the lack of initiative from traditional lenders.
Fortunately, the advent of digital lending has addressed these issues. Accessing business loans that are digitised end-to-end are logistically easier for women entrepreneurs. Additionally, it removes the inherent bias that women-led MSMEs face when approaching traditional lenders. The alternative data sets digital lenders use for credit modelling sidestep the need for collateral and documentation.
An ‘Ecosystem-based’ approach to lending takes accessibility one step further by partnering with digital ecosystems such as Facebook, Google Pay, Amazon, Flipkart, Zomato, Swiggy, FirstData, and leveraging information available in these leading tech aggregators. It juxtaposes this with segment-specific indicators around revenue, customer ratings/reviews, and transaction business volume to arrive at a composite credit model.
This is an important step in mitigating the underwriting challenges and enhancing access to capital for women-led MSMEs.
The digital divide must be bridged for digital lending to benefit more women-led and micro-SMEs.
Fortunately, steps are being taken on that front. Servicing this sector is also a commercially viable exercise given the scale and immensity of the credit demand. Moreover, by easing women-led MSMEs’ access to finance, the larger ecosystem, the economy, and future generations have much to gain in terms of innovation and growth.
The writer is CEO & Co-Founder, Indifi Technologies
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