*****Unseen bias causes loan applications by women entrepreneurs to be delayed or rejected more often’ | The Financial Express

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Credit and Finance for MSMEs: The government needs to increase the funding being directed toward women entrepreneurs. If the loans can be granted on cash-flow performances instead of collateral, it will highly benefit the MSME sector.

women msmesThe government needs to recognize the need for collateral-free credit for women. (Image: pixabay)

By HP Singh 

Credit and Finance for MSMEs: Women in the MSME sector have been boldly expanding their footprints and changing the dynamics of entrepreneurship. Not only in business, but women have been raising the bar in various sectors of the industry including law, medicine, bureaucracy, defence, and the media. Not being held back by caste, religion, or economic backgrounds, women have been courageously setting foot into all forms of business. They are writing beautiful and undaunted stories of how they are venturing into entrepreneurship, growing their businesses, and providing for their families.  

Women-led MSMEs’ Contribution 

Forming an idea is one thing but executing it, analyzing the market, and adapting to the changing needs of this volatile, uncertain, complex, and ambiguous business world is a strenuous yet rewarding job. While these are the challenges faced by anyone establishing their startup, women are also struggling with the gender bias in the system. Women are not only up for the challenge of starting their small businesses but contribute about 1.23 crore units of MSMEs in India. These women are fiercely foraying into the business sector and breaking the barriers of gender disparity and challenging stereotypes. Women-led MSMEs in India soared by around 75 per cent on the Udyam portal in FY22 compared to FY21. Female leaders are speaking up fervently against the biases and proving themselves constantly as the pioneering factor in various domains. They have been a major part of the economic development of our nation. 

While women running micro, small, and medium enterprises (MSMEs) are working diligently day and night to sustain themselves, finances prove to be a tremendous challenge as they try to expand and grow. India’s MSME business made up around Rs 6 crore. But women only made for a little over 20 per cent of this business. Compared to the MSME Ministry FY11 reports, women-led businesses have only risen 7 per cent in the past decade. A lot of factors contribute to the barriers that are stopping women entrepreneurs and MSMEs from growing. One of the major setbacks is the credit system for loans in India.  

Unseen Bias 

Currently, the credit system set by the government in our country is highly dependent on collateral. This poses an incredible challenge for the female entrepreneurs in our country. Being in a patriarchal society, most of the collaterally-acceptable assets are under the name of the males within the family. Houses and cars are registered under one’s father or husband’s name. Additionally, due to the patriarchal mindset of families, many times, families do not want to extend support to the women in their families thinking they might fail. The concept that women are better within the four walls of a house still exists in many parts of India, especially the rural and semi-urban regions. Due to this, there is a gap between the aspirations of what many women want to achieve and the resources they have to get there.  

Even if women are somehow able to bring forth collateral assets for their loans, the fight does not end there. Women running businesses have equal access to apply for loans, but there are a series of issues that they face during the process. There is an unseen bias within the society and loaning system that causes the applications of women to be delayed or rejected more often. Even though a man and a woman may come up with the same loan application with similar outputs and presentations, the man is more likely to receive the loan. This is because of the gender disparity that still exists in our country. Whether knowingly or unknowingly, women are not considered good to run businesses even though they have been proving themselves time and again.

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These women work assiduously to not just keep their businesses running but also to employ others. They are more than capable of growing their startups and providing a steady income. However, many women in our country are unable to build their dreams because of the lack of financial backing. Many women also have to give up their enterprises because of a lack of funding that would allow them to thrive. These women entrepreneurs not only would increase the competition in the country for quality and value-driven products and services but also would contribute to our nation’s development and growth. While providing for their families and raising the standard of living, they also raise the economic growth of the nation. With these women being empowered, our future generations would reap the benefits of their boldness and growth.  

Credit Accessibility 

This is why there is an urgent need for the government to look into credit access for women in the MSME sector. Although the microfinance sector has recognized these issues and many within the industry are fiercely fighting to provide microcredit access to women in rural areas, the government needs to step into the picture and make these microcredit loans more accessible. With the support of the government and the right initiatives in place, the microfinance and banking sector will be more empowered to financially support these women and their businesses. This will further boost the financial ecosystem of India and raise the bar for businesses.  

Although there are certain initiatives taken, there is still limitation and restrictions to them. The government needs to increase the funding being directed toward women entrepreneurs. If the loans can be granted on cash-flow performances instead of collateral, it will highly benefit the MSME sector. The government needs to recognize the need for collateral-free credit for women and recognize the efforts of institutions in the banking sector trying to push for this.  

By freeing up the need for collateral assets and boosting an ecosystem where cash-flow performance is acceptable to grant loans, women entrepreneurs could receive a huge augmentation in finances. Empowering women is the call of the hour, and they need to be able to access credit based on their growth in the business, despite their economic background and gender. By putting initiatives in place for a collateral-free loan, India would strongly strike the 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 various families, thus contributing to the GDP growth of our nation. 

HP Singh, Chairman & Managing Director, Satin Creditcare Network Limited. Views expressed are the author’s own. 

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