A new generation of female entrepreneurs is changing the way MSMEs are defined. According to the Global Gender Gap Report 2022 from the World Economic Forum, the pandemic continues to affect more women than males. Nearly 90% of Indian women who rely primarily on their companies for subsistence do not have access to institutional finance. We spoke to Sanjay Sharma, Managing Director, Aye Finance, on some issues women entrepreneurs usually face, and what could be done about it. Excerpts:
DQ: How Fintech in India Can Promote the Growth of Women-Led SMEs?
Sanjay: There are over 8 million women-led micro-enterprises and they face a credit deficit of over $158 billion making access to affordable capital their greatest challenge to unleashing their true potential. Formal lending channels have not been able to address this demand and women SMEs have had to rely on informal sources of finance for seed capital and working capital requirements. This is because along with not being able to offer traditional risk assessment documentation and lack of credit histories, they also face additional barriers which are rooted in the social construct and unconscious gender biases.
The advent of Fintechs has catalyzed the growth of women micro-entrepreneurs as they have designed credit evaluation methods that moved away from direct human evaluations of creditworthiness and designed underwriting models that hinge on effective use of technology and big data analytics backed by artificial intelligence algorithms. The tech-backed lenders have removed the element of the subjectivity of the underwriter that could be tainted by bias resulting in an impartial risk selection process that is not impacted by the cognitive limits of the underwriter. Coupled with that, the new-age lenders are also offering non-financial services to build the confidence of women business owners and to build their financial literacy and business management skills.
The innovative approaches to addressing the credit requirements bundled with skill-building services offered by Fintechs is effectively addressing the barriers the women micro-entrepreneurs face in scaling up their businesses.
DQ: What are the challenges faced by women-led SMEs?
Sanjay: Empowering women entrepreneurs is essential for achieving the goals of sustainable development. Still, they continue to face challenges that are of different dimensions and magnitudes to that faced by their male counterparts. This prevents them from realizing their potential as entrepreneurs and creating a transformative change in the economy despite there being over 20% of grassroots businesses that are women-led in India.
A recent IFC report estimates that about 90 percent of the women entrepreneurs in India have not availed of finance from formal financial institutions as they rarely have collateral or business documentation to offer for credit assessment. While access to affordable finance tops the list of obstacles, factors like gender discrimination, inaccessibility to information, training opportunities, risk aversion by women, lack of confidence, lack of vision, etc. also make the entrepreneurial journey more arduous for the women.
DQ: What are some of the steps are you taking to promote diversity among the clientele?
Sanjay: Women-led micro businesses make significant contribution to the economic metrics of our country but their potential remains largely untapped because of systemic barriers they face. Women owning micro-enterprises widely point to the lack of access to capital as the biggest constraint in running and growing their businesses. Lack of business documentation and credit history are major barriers in the women MSEs accessing formal channels for raising funds for their businesses and the extortionary practices of money lenders/ chit funds can be dissuasive.
Aye uses a proprietary “Cluster-based credit assessment” methodology that allows us to lend to these women micro-entrepreneurs that have never been able to access formal channels for meeting their credit requirements. We also use a variety of credit assessment tools that focus on data analytics, customer profiling, and behavioural science for risk selection to make a robust lending decision even when traditional business documentation and prior credit history are not available. Our product portfolio, acquisition process, and service delivery have been designed to mirror the comfort of micro-entrepreneurs and our ability to offer collateral-free small ticket size loans has made Aye Finance a preferred lender to the women-led grassroots businesses.
Appx. 20% of our portfolio comprises of women-led micro-entrepreneurs who we have supported with our collateral-free loans and over 90% of our asset book has women as co-applicants. We also offer non-financial services to women micro-entrepreneur through our not-for-profit arm FAME (Foundation for Advancement of Micro Enterprises). Customized skill enhancement and capacity-building interventions are run for women entrepreneurs in the Dairy, Shoe manufacturing, sports manufacturing, and Kirana clusters of tier 2 and beyond cities.
DQ: How digitisation and technological adaptation help women MSME players leverage their businesses?
Sanjay: Most of the businesses, including the unorganized grassroots businesses are having to re-evaluate their business strategies post COVID making the shift from a traditional “in-person” approach to a contactless method of serving their customers. Micro businesses including women led businesses can benefit tremendously by adopting digital tools and leveraging social media to run their business more profitably but they are faced with the challenges of limited resources and capacity. Tech giants like Facebook and Google have supported the women entrepreneurs to overcome these challenges by providing solutions like Facebook marketplace, Instagram and Google for Retail. These platforms also allow the women to run their businesses from the comfort of their homes, supporting them in balancing their business with their household responsibilities. Our Government has also launched various initiatives to assist the women entrepreneurs to adopt technology and drive operational efficiencies in their businesses.
DQ: What are you doing for women entrepreneurs to expand their opportunities through upskilling?
Sanjay: Aye has its own Section 8 Company (Not for profit) FAME (Foundation for Advancement of Micro Enterprises) through which it provides non-financial support to micro-entrepreneurs in the areas of Market Development, Production know-how, and Enhancing their business and financial management skills. FAME has customized CSR interventions to bridge the gap between the aspirations of this sector and the opportunities available to them. This is being achieved through support
We are aware of the hidden entrepreneurial potential of women and the challenges they face in realizing them and have designed customized interventions that work toward breaking down these hurdles and becoming their partners in growth. Under these women-focused interventions, specialized training programs and workshops are conducted that build their business and soft skills. FAME has its own in-house training center for women shoe artisans of Agra to train them on the skills to manufacture good quality shoes. Post the training these women artisans are also supported in finding livelihood opportunities.
Women-only capacity-building programs are organized for women MSEs in the dairy, sports manufacture ring, and Kirana clusters who were not comfortable attending the sessions with the men. Women entrepreneurs are strong agents of change and FAME will continue to build their skills as well as the confidence to power their growth.