The $158 bn hole in financing women-owned SMEs | Economic Times

About 90% of women-owned SMEs (WSMEs) in the country still rely on informal financing and 66% WSMEs do not have a bank account, said Qamar Saleem, Regional Manager-Asia & Pacific, Financial Institutions Group, International Finance Corporation (IFC).Pointing out that there is a business case for financial institutions to reorient themselves to serve women entrepreneurs better, he explained the challenges and market opportunities that exist for women entrepreneurs and WSMEs in India.Citing a report by IFC, Saleem stated that 20% of the population of SMEs in India are WSMEs, which brings the number to around 20 million. Their highest concentration lies in four states: Kerala, West Bengal, Karnataka and Tamil Nadu. “This is a really underserved segment with a lot of opportunities. There is a finance gap of $158 billion for WSMEs in India. This gap is the largest for the micro and small enterprises owned by women, requiring loans between $1,000 and $15,000. This segment of ‘MFI graduates’ or the missing middle are microfinance borrowers whose financial requirements have outgrown microfinance, but are deemed too small for banks,” he said at Sankalp Global Summit 2021.He added that NPAs are 40% less for WSMEs, according to IFC data. So, these segments have a better risk profile.VSEsSaleem said the segment in the new missing middle is called very small enterprise (VSE) where banks are unable to downscale and microfinance institutions are unable to upscale to meet their needs. According to rules, VSEs are those that have loan eligibility of Rs 2,00,000-10,000,000, employ less than 20 people and have an annual turnover of Rs 10 lakh to Rs 50 lakh. The IFC report said $11.4 billion is the estimated aggregate credit demand of 2.7 million VSEs in India.Over 70% of the VSEs are involved in one of seven activities — manufacturing of textile and wedding apparel; wood products manufacturing; retailing of food and grocery; making and selling jewellery and accessories; operating retail beauty salons and personal services; making food and beverages; and involved in educational services and preschools. “One of the biggest challenges we have seen here is that financial institutions do not draw a distinction between women-led manufacturing and services VSEs. Our research clearly shows that the product needs, the proposition needs, as well as the need in terms of financing are different in both these segments and that needs to be taken into account,” he said.Among the other basic challenges that women VSEs face are:Social biases and conditioning: Includes gender biases in the family and business ecosystem and, therefore, limits the opportunities to diversify the sales channel.Inability to access the right kind of finance: Includes unsuitable credit products, limited access to information about financial service providers, discomfort to borrow from formal sources, inefficient support in accessing government schemes, and unconscious bias among credit providers.Lack of access to non-financial services: Giving financial support is not enough to help women VSEs. They need non-financial support such as advisory, child care and networking help, and access to government-driven non-financial support.Saleem said the challenges of gender bias became worse during the pandemic. “Women who own VSEs were expected to prioritise their family needs during the pandemic and therefore they reduced the time spent on their business. This has disproportionately reduced the number of businesses that can be done, especially those that are not online,” he said.Actions neededPointing out the efforts needed to tackle these challenges, Saleem explained a couple of steps that can come into play. These include access to B2B and B2C markets that work with industry associations. The players need to play a bigger role in helping women VSEs with market linkages. The second step includes access to knowledge in terms of mentorship and training. Regulatory bodies and associations need to come together to give technical and non-technical skills to women VSEs. These entrepreneurs need to have partnerships with technology enabled services and supply chains and should be able to effectively use data and tools to optimise their businesses. “There is also a strong focus needed on the gender lens. Any client that we've talked to has no availability of data on the percentage or the number of women-owned SMEs they have in their portfolio,” he said.Therefore, it is important to adopt gender parity, keep records and train staff and build capabilities within the staff to understand the segment of women-owned SMEs.The next step includes helping women VSEs with non-financial services. Financial institutions need to partner with entities that are experts in developing case studies and modules on non-financial services in small businesses, he added.