Challenges and Opportunities for NBFCs in Supporting Women-led MSMEs

India’s Micro, Small, and Medium Enterprises (MSMEs), the second largest sector after China, are bound to grow exponentially in the upcoming years. The constantly expanding landscape is being shaped by various key trends that present opportunities and challenges. Women-leading Micro, Small, and Medium Enterprises are critical for growth and job creation in the country but face obstacles in accessing financial support. This is arguably the biggest challenge they encounter.

Obtaining loans for women-led MSMEs facilitates their productivity and leads to economic growth. Despite the government’s continuous initiatives to grow women’s participation in the financial sector, the statistics show a consequential decline in their growth. However, the Non-Banking Financial Company uniquely possesses the potential to bridge this gap and empower women in the country. 

Bearing this in mind, here are some challenges and opportunities for non-banking financial companies to support women entrepreneurs. 

Understanding the Roadblocks

Essentially, when it comes to acquiring loans for MSMEs and SMEs, women entrepreneurs face various obstacles. These are the factors hindering women entrepreneurs from accessing formal credit channels: 

Collateral Obstacles: Conventional lenders seek collateral ownership to lend money to borrowers. Due to societal norms and current inheritance practices, limited women have access to property ownership. This, at the one hand, creates hurdels for new-born and yet-to-be-born-MSMEs as far as availability of adequate finance at right time. On the other, it also provides enough room and opportunity for NBFCs to fill this gap and tap the market in MSME space. 

Preconceived Notions About Women-owned Businesses: The loaning institutions regard women-owned businesses as vulnerable and meager due to gender biases and the weak socioeconomic status of women in the country. According to an IFC report, only 10% of women in India have opted for financial assistance from a formal institution. Though this pre-conceived notion related to vulnerability and gender bias is somehow vanishing with increasing chunk of women workforce in various industries and women-led successful start-ups and businesses, the instances still apear at intervals in many part of the country. 

Opportunities in the Financial Sector 

NBFCs are crucial to the economic sector as they offer various money-related services to women entrepreneurs at favorable terms of interest. According to the data by the Central government report of 2021-2022, the MSME sector comprises 79.63% male owners and only 20.37 percent of women business owners. 

With Tier 2 and Tier 3 cities accounting for most of the MSME sector, it becomes crucial for MSMEs to cater to women in these cities and help them flourish in the sector. Some of the key aspects of NBFCs that empower women-led businesses include tailored financial solutions, instant loan processing, and minimal documentation. Through these augmentative solutions, NBFCs are providing much-needed support to budding women entrepreneurs. 

Role of NBFCs in Empowering Women in the Financial Sector 

Non-Banking Financial Companies have emerged as vital players in the constantly changing industry of finance and technology. It holds the capability to revolutionise the current market and how it perceives women-led businesses. NBFC has currently served 1.5 lakh women so far and has introduced a credible and inclusive approach for them to acquire financial support. 

NBFCs’ has been a catalyst for change in the sector. Their continuous adaptation and innovation have led to women-owned businesses flourishing in the country. Besides their immediate impact, the initiatives taken by NBFCs are bringing a more varied and inclusive approach to the financial sector. NBFCs' success in the industry not only sets an example for other financial institutions but also urges them to follow in their pathway to embrace the power of diversity in the sector. 

(The Author is MD and Co-Founder, SAVE Solutions Pvt. Ltd. Views Expressed are personal.)