Financial inclusion is considered to be instrumental in empowering women as advancing credit to women, who own businesses, improves their economic stature and independence across the globe. In the Indian context, encouraging greater access to financial services becomes more relevant given the various degrees of socio-economic discrimination women are subjected to in their daily lives. The following article discusses the findings of a report titled ‘Micro, Small, and Medium Enterprise Finance: Improving Access to Finance for Women-owned Businesses in India’ (Report) published on March 11, 2014 by the International Finance Corporation. The research report focuses on the opportunities, challenges, and way forward to improving access to finance for women-owned businesses in India.In India, there are around 3.01 million women-owned businesses which account for about 10 percent of the total micro, small and medium enterprises (MSME). They collectively contribute around 3.09 percent of the total industrial output and employ over 8 million people.
As data reveals, 97.2 percent of women-owned businesses fall under the micro industries category. This concentration of industries indicates reduced growth capacities and opportunities these companies caused due to the huge gap in the demand and supply of financial services to the same.
According to the report, the financing gap for women-owned businesses amounts to Rs. 6.37 trillion in 2012. This accounts for 73 per cent of the total requirements by MSMEs in the country.
Currently, the various funding sources for women-owned business include formal, semi-formal and informal sources. Out of these available sources, women-run enterprises, much like the general trend in the MSME sector, largely depend on informal lending sources that constitute 92 per cent of the total share of funds provided in 2012. There are 3 million women entrepreneurs in India, but only 3 per cent have access to finance from formal financial institutions.
Barriers to financial inclusion of women
The major factors that impeded financial inclusion of women entrepreneurs are as follows:
Lack of adequate collateral: Due to persisting social restrictions around inheritance and land ownership, women in India do not have ownership of property or enough assets to use them as collateral for availing loans at low interests from formal funding sources. Even when women do own legal rights to properties, the male members either get them legally transferred to themselves or exercise control over them even without legal rights or title deeds. Therefore, poor financial literacy amongst women and lack of agency of women in terms of title deeds restricts their capacity to ensure collateral for credit.
Lack of formal loans to women: As the report mentioned above points out that approximately 90 percent of women-owned enterprises are in the informal sector and 78 percent of them belong to the services sector. Banks traditionally identify the informal and service sectors as high risk group as interest returns remain uncertain. This is mainly because of the following reasons:
a) lack documents and papers essential for banking services, and
b) increased number of smaller loans shoots up the cost for the banks to administer and provide equal financial services to all.
Absence of women employees in bank: Women employees, who are believed to act as mediators enabling more women to come up to banks to avail banking services, constitute less than 20 percent of the bank’s workforce.Apart from the afore mentioned factors, lack of financial awareness, absence of support from the male members of the family and lack of confidence to approach financial institutions act as the major barriers.
Government ResponseThe MSME ministry launched the government’s only financing scheme for women entrepreneurs- Trade Related Entrepreneurship Assistance and Development (TREAD)-in 2008. This is the only targeted approach on the part of the government to provide finances focusing on the MSMEs. However, as against the target of Rs. 38 million only Rs. 7.7 million were disbursed as loan amount in 2012.
The central schemes like the Prime Minister’s Rozgar Yojana, the Swarna Jayanti Shahari Rozgar Yojana and the Swarna Jayanti Gram Swarozgar Yojana currently provide funds to MSMEs. But the net contribution of these schemes is a mere 7 per cent of the total share of funds supplied to women-owned MSMEs.Lastly, by establishing more branches of Bharatiya Mahila Banks, the government aims at catering to the banking requirements of women and promote their economic empowerment.
ConclusionAlthough microfinance plays a key role in encouraging individual women belonging to the low income group, who require loans to run tiny enterprises, its mono-product environment, singular delivery model, lack of flexibility, and shorter-tenure loans with limited amount of credit restrict their scope to low-income women or micro entrepreneurs rather than women-owned MSMEs.
Considering the gradual rise in the number of women entrepreneurs in India, there is an urgent need to encourage banks to step up formal funding of women entrepreneurs.