Lakka Raju Jyothi’s entrepreneurial journey began with MJV Traders after spending five years working at a retail store in a mall. Driven to establish her venture, she joined forces with her husband, who works at a call centre, to set up their general store in India's Silicon Valley Bengaluru.
With her sales increasing by nearly 30 per cent after increasing her inventory, Jyothi, who is in mid 30s, is now planning to open a second store. For her, the success of businesses has bolstered her confidence as now she can contributing to her family [financially] and community by creating indirect employment opportunities.
Amid the continuous issues related to easy access to credit and gender bias faced by women-led micro, small and medium enterprises (MSMEs), a report by Shiprocket has revealed that about 20.5 per cent of registered businesses are pivotal contributors to the growth while generating 19 per cent of employment.
As a woman entrepreneur in India where females have to witness several obstacles to start their business such as lack of fair credit and gender bias discrimination, Jyothi feels empowered to unlock her potential through this loan and dream even bigger.
She believes that business loan NeoGrowth, an MSME-focused digital lender has played a role in the success and the expansion of her store during crucial moments. “I was able to create new opportunities for my community and turn my dreams into reality, with the support of NeoGrowth loan,” Jyothi claimed. Earlier in July 2023, she had taken a loan of Rs 6 lakh and a Rs 7 lakh loan from NeoGrowth in February 2024.
Taking Chances
Jyothi is not the only one who is fighting gender-based discrimination to set up their venture by taking up loans from lending firms in India. In Pune, Maharastra, Manju Badekar, founder of Badekar Enterprises, has always been a pillar of strength for her family. After the demise of her husband, she knew she had to find a way to support her son, which led her to expand the towing business.
Working tirelessly to rescue stranded motorists, Badekar and her son earned a reputation for reliability and reasonable prices. Despite the initial difficulties and the grief over her husband’s loss, she found satisfaction in the work they did together. As her towing business grew, she diversified by starting a water and cold beverage distribution business.
"Our business got an opportunity for growth, thanks to the business loan from NeoGrowth, which helped me pave the way for financial independence," the 45-year-old Badekar added. Notably, she reported a 20 per cent growth in sales after receiving the loan.
Notably, NeoGrowth has disbursed Rs 650 crore in loans to them during FY2024 which is a 34 per cent uptick from the previous year. This amount represents 23 per cent of the company’s total loan disbursals, which was Rs 2,863 crore for the fiscal year.
The NeoGrowth Impact Report 2024 revealed that over 3,600 women-owned MSMEs benefited from business loans. The company lend to businesses led by women by offering loan application processes, flexible repayment options and no collateral requirements.
Arun Nayyar, Managing Director and Chief Executive Officer (CEO), NeoGrowth said, “We have witnessed that women-run businesses exhibit remarkable strength, responsibility, and innovation in their ventures. The adoption of digital lending platforms has made it easier for women entrepreneurs to apply for and manage loans, reducing the barriers to accessing finance.”
Nayyar claimed that NeoGrowth’s use of technology to streamline loan disbursement and management processes has likely contributed to the increase in loans availed by women-run MSMEs.
Challenges For Women-owned MSMEs
In India, the MSME landscape reflects global trends, with 63 million MSMEs contributing 30 per cent of the gross domestic product (GDP) and over 40 per cent of exports. They are also a powerhouse for employment, providing jobs to 110 million people. Yet, a financing gap of USD 333 billion persists, according to the International Finance Corporation, World Bank Group.
India’s women entrepreneurs lead nearly 15 million MSMEs, predominantly in manufacturing, however, the financial hurdles coupled with societal bias often make it difficult for women to sustain their businesses, thus calling for targeted empowerment and support.
Nayyar told BW, “The major challenges that women-owned MSMEs face in India are with respect to registering the firm in their own name, difficulty in securing funding as opposed to men-owned MSMEs, hiring and retaining employees, social stigma about sacrificing family life to focus on the business, capacity building and scaling up, etc.”
A major challenge arises from the stringent repayment terms imposed by informal sources. Borrowers are often subjected to a remarkably short repayment window, creating pressure and potential financial instability. In addition, the nature of this type of financing tends to focus solely on the repayment aspect, without considering the broader business dynamics and cycles.
In a shocking development, about 95 per cent of Indian women are unaware of existing government financial schemes or initiatives to leverage their business, according to a survey report- Bharat Women Aspiration Index (BWAI) by Tide India.
This indicates women are turning to the informal sector for access to credit. About 52 per cent of women entrepreneurs have access to financial credit, indicating that one in two entrepreneurs has access to finance, while 47 per cent said they face challenges.
Interestingly, about 80 per cent of women agree that tailored financial programmes can make their entrepreneurial journey easy. Around 63 per cent of women claim to have access to mentorship to guide them in their businesses. However, 90 per cent cite names of relatives, or close friends/family networks as ‘peers’, indicating a lack of structured programmes for women to network and upskill with business know-how.
The report also revealed that around 80 per cent of women recognise digital literacy as an important enabler. Around 51 per cent, or one in two, business owners face hurdles in accessing digital tools for business.
“We apply the same robust credit assessment processes to all loan applicants, regardless of gender, thereby ensuring that our loan products offer flexible terms, competitive interest rates, and customized repayment options to support their business ventures,” Nayyar informed.
He added that the approach to customer selection and risk management is driven by objective decision-making, powered by data and analytics while maintaining a strong connection with customers.
Additionally, many MSMEs do not have a formal credit history or credit rating, making it difficult for lenders to assess their creditworthiness, irregular cash flows and the loan application process can be lengthy and cumbersome, involving extensive documentation and procedural delays, which deter MSMEs from seeking formal credit.
Notably, delayed payments from clients can affect the ability of MSMEs to repay loans, making them less attractive to lenders. Borrowers are often subjected to a remarkably short repayment window, creating pressure and potential financial instability. In addition, the nature of this type of financing tends to focus solely on the repayment aspect, without considering the broader business dynamics and cycles.
A report by GAME with Dun & Bradstreet (D&B) and Omidyar Network India highlighted that an estimated 5.9 per cent of the gross value added (GVA) in the Indian economy— Rs 10.7 lakh crore is locked up in delayed payments from buyers to MSME suppliers.
While talking about the causes of payment delays, the report stated that fundamentally, payments are delayed because of a power asymmetry between smaller suppliers and large buyers. According to another report by Kinara Capital, women-owned MSMEs demonstrated higher repayment than male-owned MSMEs. While only 3.4 per cent of women entrepreneurs defaulted on loan repayment, the rate among men was as high as 4.6 per cent.
What's Next For NeoGrowth?
Talking about NeoGrowth's performance for Q4FY2024, profit before tax (PBT) surged by 113 per cent to Rs 28 crore, up from Rs 13 crore in Q4 FY23. The company's return on equity (ROE) stood at an12.8 per cent, while the return on assets (ROA) was 3.4 per cent.
In FY2024, the company had targeted to lend 20 per cent to women entrepreneurs but ended up surpassing this target by lending 23 per cent. It has set up a target of 20 per cent for FY2024-25 in terms of loans to be disbursed to women entrepreneurs.
“For FY2024-25, we remain steadfast to actively support women entrepreneurs as part of our efforts to promote gender equality and financial inclusion. Our lending to women-led MSMEs (those with women as sole proprietors, partners or directors) will remain committed to the same proportion as a percentage of the total loans we disburse to all businesses,” Nayyar added.
India’s women entrepreneurs like Jyothi and Badekar, face numerous challenges, but targeted lending and support have helped them thrive. Despite a USD 333 billion financing gap, female-led MSMEs contribute significantly to the economy and initiatives promoting gender equality and financial inclusion are crucial for their growth.
