Credit Access Remains Elusive For Women-led MSMEs: Kinara Capital's Hardika Shah

In India, less than 15 per cent of all businesses are led by women and less than 5 per cent of women are in positions of leadership at organisations. The significant financing gap faced by MSMEs, particularly women-led ones, is a reflection of systemic challenges like lack of collateral access and documentation, and traditional gender roles still being so prevalent in Indian society.

In an interview with BW Businessworld, Hardika Shah, Founder and Chief Executive Officer (CEO), Kinara Capital said that women continue to face socio-economic inequities and biases and have a far more difficult time starting their ventures. 

Shah added, “Another challenge is the gender bias in loan decisioning among traditional lenders, which still persists. Women’s entrepreneurial capabilities may be underestimated, resulting in hesitation to provide financing, even when the business case is strong.” Edited excerpts: 

What significance does the 20 per cent representation of women-owned MSMEs hold for India's economic growth?

It is definitely evidence of the fact that women entrepreneurs are participating in the formal economy, but there is no denying the fact that 20 per cent is a very low number. Despite making up nearly half of the population, women MSME entrepreneurs are merely 1/5th of the overall 63 million MSMEs in the country. Women still face significant barriers to entering and scaling their businesses. Apart from the socio-economic biases, access to capital is a significant challenge that stops women from pursuing entrepreneurship. Women entrepreneurs often face higher borrowing costs and longer wait times for loan disbursement compared to their male counterparts, even though they tend to have better repayment rates.

Addressing these barriers will be critical for unlocking the potential of women-led MSMEs. The financial services and investor ecosystem have stepped up the support by rolling out women-focussed products and implementing gender-sensitive lending policies that recognise the unique challenges and strengths of female entrepreneurs. Scaling up these efforts along with systemic changes can further boost the momentum. In fact, according to data from Bain and Company, women in entrepreneurship, if accelerated, have the potential to generate 150 to 170 million jobs, which is more than 25 per cent of the new jobs required for the entire working-age population of India by 2030. This is the key to accelerating the country’s economy’s growth to the ambitious USD USD 7 trillion.

India’s women entrepreneurs lead nearly 18 million MSMEs, however, many hurdles make it difficult for them to sustain their businesses. Can you elaborate on how this has added to the USD 400 billion financing gap faced by MSMEs?

Women continue to face socio-economic inequities and biases and have a far more difficult time starting their ventures. In India, less than 15 per cent of all businesses are led by women and less than 5 per cent of women are in positions of leadership at organisations. The significant financing gap faced by MSMEs, particularly women-led ones, is a reflection of systemic challenges like lack of collateral access and documentation, and traditional gender roles still being so prevalent in Indian society.

Access to capital is a critical area that women entrepreneurs often struggle with. Though women form only 20 per cent of the MSME ecosystem, they account for more than 40 per cent of the USD 400 billion credit gap, which translates to over USD 160 billion. One of the primary challenges is the lack of property collateral. According to the National Family Health Survey-5 conducted by the Union Ministry of Health and Family Welfare, over 57 per cent of women in India do not own a house and over 68 per cent do not own land. Traditionally, lending institutions have required assets as security against loans, and as many women entrepreneurs don’t have access to this collateral, they face higher rejection rates for loan applications.

Another challenge is the gender bias in loan decisioning among traditional lenders, which persists. Women’s entrepreneurial capabilities may be underestimated, resulting in hesitation to provide financing, even when the business case is strong. Our MSME Insights survey published earlier this year showed that when supported with resources, particularly formal credit, women-owned MSMEs registered a 19 per cent increase in monthly net income, compared to 18 per cent by men-owned MSMEs. They also had a lower default rate of 3.4 per cent, while the rate among men was 4.6 per cent.

There is a significant disparity between the demand for credit and the supply available to women entrepreneurs. As women MSME owners continue to scale their businesses, the need for financial products that address their unique challenges, such as collateral-free loans, unbiased decisioning, and flexible repayment terms, becomes even more critical.

How can targeted empowerment and support address financial hurdles for women entrepreneurs? What role can government financial schemes play in bridging this gap?

A focused approach can play a transformative role in helping women overcome financial hurdles and scale up their businesses. The government has taken several initiatives like the Pradhan Mantri Mudra Yojana, which have helped women entrepreneurs access loans, nearly 30 crore loans which is around 68 per cent of disbursements have been given to women, but there is still a lot to be done.

By designing financial products that cater specifically to the needs of women-led MSMEs, the financial services ecosystem can help bridge the gap between credit demand and supply. According to the second edition of Kinara Capital MSME Insights, which focussed on highlighting how formal financial support can empower women-owned MSMEs, 1/3rd of all new jobs created by women-owned MSMEs went to women employees. 

Further, women-owned MSMEs hired 11 per cent more women employees than male-ownedmen-owned MSMEs indicating how women MSMEs are driving a systemic shift in inclusivity. Empowering women entrepreneurs also impacts the standard of living for families and communities. According to the United Nations, women spend nearly 90 per cent of their earned income on their families’ well-being, thereby improving access to better nutrition, healthcare, and education for the population as a whole.

How crucial is digital literacy for women entrepreneurs in India? What challenges do women face in accessing digital tools for business?

Digital literacy is increasingly becoming critically important for women entrepreneurs in India, as the shift toward digital platforms reshapes how businesses operate. Digital tools enable entrepreneurs to streamline operations, access new markets, engage with customers, and manage finances more efficiently. For women entrepreneurs, digital literacy can level the playing field by giving them access to resources, knowledge, and networks that were once out of reach, helping them grow and scale their businesses faster. According to data from Redseer, 96 per cent of the MSMEs reported a total net profit increase and 55 per cent of the sellers saw their profits grow by 24 per cent post ecommerce onboarding, indicating the potential impact digitalisation can have on the MSME ecosystem as a whole, including women-owned businesses.

However, women entrepreneurs face several challenges in accessing digital tools for business. One significant barrier is the gender gap in smartphone usage and internet penetration. This digital divide limits women entrepreneurs' ability to access ecommerce platforms, digital marketing tools and online financial services. Cultural and societal norms can also act as hurdles, as some women face restrictions on technology use or lack the family support necessary to pursue digital learning. 

The GSMA Mobile Gender Gap Report 2023 revealed that only 31 per cent of women in India use mobile internet, compared to 52 per cent of men, leading to a substantial gender gap of 40 per cent. This is driven by factors such as affordability and literacy challenges. Women are also 17 per cent less likely to own a smartphone, highlighting broader digital inclusion issues based on socio-economic inequalities.

What prospects do you see for women-led MSMEs in India's post-pandemic recovery? What policy reforms are necessary to support women-led MSMEs in India?

The pandemic disproportionately impacted the MSME sector causing a slowdown that has persisted well after the event. Women-led MSMEs, being at a natural disadvantage because of myriad socio-economic hurdles, were slow to recover. However, having rolled out Covid relief loans to our customers, we saw many women-led businesses pivot to adapt to the evolving market conditions. They were able to get on the recovery path with steady financing support. 

However, several challenges persist for women-owned MSMEs as a whole, particularly in accessing adequate financing and navigating traditional biases. Expanding access by supporting last-mile financial services providers and providing targeted incentives such as tax rebates for investors practicing gender-lens investing could be game-changers. Encouraging private investors, both domestic and foreign, to back women-led MSMEs and last-mile financiers who cater to their needs is essential for bridging the funding gap.

What is your company doing to help women-led MSMEs? What's your vision for women's entrepreneurship in India in the next 5 years?

Our HerVikas program offers collateral-free business loans with an upfront discount to women-owned MSMEs to level the playing field and help them scale their businesses. Recently, we expanded the scope of the program to make it available to women-owned MSME startups who can apply within one month of MSME registration and started additional benefits such as a 60 day repayment holiday and a 50 per cent reduction in processing fees in addition to the upfront interest rate discount.

Our multilingual myKinara App enables women entrepreneurs to apply for business loans from their smartphones at their convenience. HerVikas benefits are automatically applied with no separate application required. By digitising the loan process, we’re reducing the complexities often faced by women when dealing with traditional financial systems. Our AI/ML data-driven credit-decisioning method allows no scope for human bias. This is backed by doorstep customer service, with our representatives providing personalized assistance to help borrowers navigate the loan process.

So far, we have disbursed over Rs 781 crore to date in collateral-free HerVikas loans. This year, we made an additional allocation of Rs 500 crore to the program and are on track to exceed Rs 1,000 crore in disbursements by FY25. HerVikas program has led to over a 21 per cent rise in net income for women-owned businesses and the local economies that they are.

Over the next five years, I anticipate a sharp rise in women-led MSMEs taking off and scaling up, driven by access to digital tools and financing. With platforms like Udyam providing visibility and financial inclusion initiatives supporting them, women entrepreneurs are already showing their eagerness to participate in economic growth. Supported by the right resources, they will be able to scale their businesses faster, and I hope to see more of them taking the lead in traditionally male-dominated sectors like manufacturing. At Kinara, we’re looking to steadily ramp up HerVikas disbursements for women MSME entrepreneurs. Our ultimate vision is to build a more financially equal world where all entrepreneurs have timely access to financing, removing the barriers of bias.

Women’s participation in the workforce promises to unlock immense potential for economic growth. McKinsey Global Institute estimates that just by offering equal opportunities to women, India could add USD USD 770 billion to its gross domestic product (GDP) by 2025.