Ashraf Engineer
November 23, 2024
EPISODE TRANSCRIPT
Hello and welcome to All Indians Matter. I am Ashraf Engineer.
Think of all the businesses you know of. Now think of how many are owned by women. If you struggle to name more than a handful, it’s because in a world where women make up half the population, they own less than one-fifth of the businesses. A World Bank survey across 138 countries between 2006 and 2018 uncovered this unfortunate statistic. But what it also showed is how women-owned businesses empower other women.
In businesses owned by men, only 23% of employees were women but women-owned businesses employ far more. Among male-owned businesses, only 6.5% have a woman as the top manager. More than half of women-owned firms are led by women.
India, of course, has always been challenging for women. Female labour force participation and entrepreneurship are low, made worse by the COVID-19 pandemic and the mishandling of the economy by this government.
According to the 2023 State of India’s Livelihoods Report, women account for only 14% of entrepreneurs and own just 20% of micro, small, and medium enterprises – or MSMEs. Despite the low numbers, they have a significant contribution to industrial output and employ many.
They account for 3.09% of industrial output and employ 10% of workers. However, the fact remains that India ranks 57 out of 65 for women’s entrepreneurship with only 2.16% of women participating in early-stage entrepreneurial activities.
India needs more women in the workforce and women entrepreneurs are the key.
SIGNATURE TUNE
According to a 2021 report by the NITI Aayog, women-run enterprises are primarily rural, small and informal. Not surprisingly, women’s contribution to India’s GDP is just 17%, much less than the global average estimated at 37%. Another NITI Aayog study showed that more than 99% of Indian MSMEs operate in the micro sector, where more than 99% of women-owned businesses are single-person ones. Only 17% employ workers, mostly fewer than six.
When you talk of women’s entrepreneurship in India, it’s mainly self-employed home-based workers to medium-sized enterprises. These are often driven by financial necessity, mobility issues and family care needs and are not necessarily businesses with a sound financial footing. What’s more, experts have long pointed out that discrimination by banks and other financial institutions is a huge hurdle.
To understand this gap, Forbes surveyed 898 women entrepreneurs. Most relied on self-funding or financial support from family and friends. Very few, 21.36%, had access to overdrafts. When it came to loans, only 17.5% could access them. More than 60% had no security or collateral when seeking capital.
It’s no wonder then that, despite India being the world’s third-largest startup ecosystem, women’s representation is low. They account for only 35% of startup employees. In 2018, just 9% were startup founders, declining to 5 out of 136 unicorn founders in 2021. The number of startups with at least one woman founder declined from 17% in 2018 to 12% in 2019.
Access to finance and assessment of financial risk are intertwined with the social environment. Many studies show that parents talk to sons more than daughters about money. Even in a situation where they have equal inheritance rights, women are often expected to give up their share to their brothers. This conditioning restricts women’s financial knowledge and decision-making capacity when it comes to money.
DBS Bank India, along with CRISIL, surveyed 400 self-employed women in 10 Indian metros for the ‘Women and Finance’ report. It found that 65% of self-employed women have not taken a business loan; 39% relied on personal savings to fund their businesses.
Among those that did manage to get loans, banks were the primary choice. They often used personal assets as collateral, with 28% leveraging property and 25% using gold
There was a huge awareness gap also when it came to government schemes; 24% were unaware of the options. Another 34% said they had not utilised any such scheme.
The government offers numerous programmes to support entrepreneurship, but they focus on access to finance – accounting for 45% of Central schemes – and skilling, which accounts for 27%. But there are other areas like market linkages and mentoring that get little or no attention. Only 7% of schemes are tailored for female entrepreneurs..
In 2019, the Global Entrepreneurship Monitor found that women tend to be more purpose-driven than men when starting a business. However, they often wrestle with self-limiting beliefs – once again, an indicator of the way society conditions them. So, there is hesitation and a sense of inadequacy compared to male entrepreneurs. This limits their drive to take financial risks and suppresses their chances of success.
As I said earlier, there is a bias in credit allocation too. Financial institutions are well known to have a gender bias when it comes to credit sanctions. This aligns with studies, including those recognised by the World Bank, that found financial institutions exhibiting gender bias and stereotyping, leading to unequal distribution of credit between men and women.
Some of this can be attributed to the underutilisation of women’s credit history. In India, 35% of all bank accounts are inactive but women face a higher inactivity rate of 42%. The inactivity makes it challenging for banks to assess the creditworthiness of women applicants. As I said earlier, women also often lack collateral or guarantors.
As you can tell, the perception of financial risk among women is shaped by a web of psychological and societal factors. So, women’s empowerment in general and the reshaping of institutional dynamics are critical.
The World Bank estimates that women-owned businesses in India generate 8 million job opportunities. It stands to reason that promoting female entrepreneurship would boost women’s workforce participation. Women-led businesses create opportunities for other women. This would also drive financial gains through higher wages, profits and more efficient women-owned firms replacing less productive men-owned ones.
So, policies that support female entrepreneurship are crucial. These could act as effective and quick catalysts to change long-standing social norms. For instance, we know that women shoulder most household chores, from cooking and cleaning to laundry, childcare and elder care. They also face barriers, such as access to safe and efficient transport, which restricts their ability to commute. Women also face resistance from families and communities to working.
Studies show that women in India work when opportunities arise. This implies that their declining labour force participation is the result of insufficient jobs and reduced demand. This is a serious area of concern because it is estimated that India can reach GDP growth of 8% by ensuring women make up over half of the new workforce by 2030.
Low female labour force participation is a lost opportunity. Getting more women into the labour force would expand the talent pool and support investments in education and child health, thus reducing poverty.
Support for female entrepreneurship would in general lead to greater social inclusion of women. This is particularly important in a culture like ours that perpetuates traditional gender roles. Female entrepreneurs generate employment opportunities for other women; they are less likely than male entrepreneurs to discriminate against women. Importantly, female entrepreneurship has a long-lasting effect by modelling entrepreneurship for younger generations of women, thus transforming deep-rooted cultural norms and gender stereotypes.
Boosting female entrepreneurship, then, seems like the sensible thing to do.
Thank you all for listening. Please visit allindiansmatter.in for more columns and audio podcasts. You can follow me on Twitter at @AshrafEngineer and @AllIndiansCount. Search for the All Indians Matter page on Facebook. On Instagram, the handle is @AllIndiansMatter. Email me at editor@allindiansmatter.in. Catch you again soon.
