Syllabus:

GS3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context:

Limited access to formal credit and the widening credit gap continue to prevent women entrepreneurs from achieving their financial goals. 

More on the News 

• Micro, Small and Medium Enterprises (MSMEs) have become instrumental in shaping India’s generating employment, creating revenue, and in global outreach. 
• In 2024, MSMEs contributed nearly 30% to the GDP. The aim is to raise this to 35% in the current year.
• This vast sector also provides opportunities for many women-led enterprises. The government has implemented several financial schemes specifically designed to promote women’s participation.
• However, the problems of limited access to formal credit and the widening credit gap continue to prevent these entrepreneurs from achieving their financial goals. 
• The underperforming schemes are pushing women to rely on informal sources of credit, which are often riskier and unreliable. 
• These challenges are not confined to MSMEs alone; they also affect informal micro-enterprises (IMEs) run by women.
• This year, over 1.86 crore IMEs have been registered through the portal, 70.5% of these are owned by women.

Worrying data on Women MSME

• Women-owned businesses account for up to 20% of all MSMEs registered in India.
• Women-led MSMEs contribute only about 10% of the total turnover and receives around 11–15% of the total investment in the sector.

Challenges Faced by Women MSMEs

Access to finance and markets: As per the International Finance Corporation, women-led MSMEs in India face a credit gap estimated at USD 158 billion. 

• Women entrepreneurs face a substantial 35% credit gap, meaning over a third of their funding needs aren't met. This is notably higher than the 20% gap for men, revealing persistent discrimination in loan disbursements, as per SIDBI.

Digital divide: A report by NASSCOM revealed limited adoption of digital record-keeping and e-commerce, with only 17.6 percent of women using digital methods for customer relationship management.

Business development services: According to a study by the Indian Ministry of Micro, Small, and Medium Enterprises, only 14% of women entrepreneurs in India have access to formal training and mentorship programmes. 

Socio-cultural barriers: Traditional gender roles and mobility constraints often confine women entrepreneurs to informal or home-based businesses.

Policy gaps: Under Pradhan Mantri MUDRA Yojana (PMMY), as of 2024, women owned 42,492,281 loan accounts under PMMY out of a total of 66,777,013 accounts, which is approximately 64%, making women form a significant group seeking financial assistance.

• However, the sanctioned amount of the total ₹5,41,012.86 crore allocated for that year’s target, only ₹2,25,887.08 crore (about 41%) was directed towards women-led MSMEs. 
• This disparity points to an economic inefficiency in delivering highly liquid, low-cost, and easily accessible loans to the underserved sections of the sector.

Key Government Initiative

• Pradhan Mantri MUDRA Yojana (PMMY): It provides collateral-free loans up to ₹10 lakh to micro and small enterprises operating in the non-farm sector. 
• Udyam Assist Platform (UAP): It aims to formalize Informal Micro-Enterprises (IMEs) by providing Udyam Registration Numbers, thereby facilitating easier access to formal credit. 
• Stand-Up India Scheme: It facilitates bank loans between ₹10 lakh and ₹1 crore for women and SC/ST entrepreneurs for greenfield enterprises.
• Udyogini Scheme: It offers financial assistance at concessional rates for women to start or expand businesses, particularly in rural areas. However, women from specific categories such as disabled, Dalit, and widowed may qualify for interest-free loans.

Way Forward

• Strengthen Financial Literacy and Credit Counselling: Implement targeted, grassroots-level training programs in regional languages to educate women on financial products, digital banking, and application processes. 
• Mandate Gender-Sensitive Banking Practices: Introduce clear directives and incentives for public and private banks to reduce procedural discrimination, set lending quotas for women-led MSMEs, and monitor disbursal with gender-disaggregated data.
• Develop Tailored Loan Products: Promote cash-flow-based lending models over collateral-based ones. Expand credit guarantee schemes specifically for women entrepreneurs to mitigate risk for lenders.
• Strengthen Local Support Ecosystems: Foster strong linkages between banks, local administration, SHGs, and women's business networks to provide accessible guidance and support.