Why in the News?
Women-led MSMEs are a key part of India’s economic growth, but they still remain underserved. Even though they make up 20% of all registered MSMEs, they contribute only 10% of the total income and receive disproportionate credit and lack of support.
Why do women-led MSMEs face persistent credit gaps?
- Discriminatory Credit Disbursement: Women face a higher credit gap (35%) compared to men (20%), as per SIDBI reports. Eg: Despite applying for ₹10 lakhs in business loans, many women entrepreneurs receive only ₹6.5 lakhs, limiting their operational expansion.
- Lack of Collateral and Property Ownership: Many women lack land or asset ownership, making it difficult to meet banks’ collateral requirements. Eg: A rural woman running a tailoring unit may not own property, so her loan request is denied despite good business potential.
- Lower Financial Literacy: Many first-generation women entrepreneurs, especially in rural areas, lack awareness of financial schemes and documentation processes. Eg: Women in small towns often don’t know how to access PMMY or Stand-Up India loans, resulting in underutilisation of available credit.
- Gender Bias in Credit Risk Assessment: Financial institutions often perceive women as risky borrowers, especially if they operate in informal sectors.
- Overdependence on Informal Credit Sources: Due to a lack of formal access, many women rely on moneylenders, who charge high interest rates and offer no legal protection. Eg: In the absence of bank loans, women-led microenterprises may borrow from informal lenders at 24% interest, leading to debt traps.
What limits the effectiveness of schemes like PMMY?
- Low Sanction-to-Application Ratio: While a high number of women open loan accounts, the actual sanctioned amount is disproportionately lower. Eg: In 2024, women held 64% of PMMY accounts, but received only 41% of the total disbursed amount, reflecting a gap in meaningful financial access.
- Administrative Inefficiencies: Delays and inconsistencies in processing applications, verification, and disbursal reduce scheme impact.
- Lack of Awareness: Many potential beneficiaries, especially in rural or semi-urban areas, are unaware of PMMY’s features or how to apply. Eg: Women entrepreneurs with informal businesses often fail to access collateral-free loans due to absence of facilitation from banks or local agencies.
How does low financial literacy hinder women entrepreneurs?
- Inability to Navigate Formal Banking Systems: Lack of knowledge in budgeting, credit scores, or interest rates discourages women from applying for loans. Eg: First-generation entrepreneurs in rural areas avoid formal credit channels and depend on informal moneylenders with high-interest rates.
- Limited Confidence in Business Decision-Making: Low financial skills reduce confidence in investment planning, profit calculation, and risk management, hampering business growth. Women running micro-enterprises often hesitate to expand operations or apply for working capital loans, fearing repayment complexities.
What is the role of the Udyam Assist Portal in women’s empowerment?
- Formal Recognition of Informal Enterprises: The portal helps register Informal Micro Enterprises (IMEs), especially women-led ones, bringing them into the formal financial ecosystem. Eg: In 2024, 70.5% of IMEs registered on the portal were women-owned, enabling access to priority sector lending.
- Improved Access to Formal Credit: By assigning a Udyam Registration Number, it enables collateral-free loans and better eligibility under various government credit schemes. Eg: Registered women entrepreneurs can now avail benefits under schemes like PMMY and Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
- Boost to Employment and Income Generation: The portal supports women in starting and scaling up their enterprises, thus enhancing livelihood security and job creation. Eg: Women-led IMEs contributed over 70.8% to employment generation in the informal micro-business segment.
Which reforms can improve credit access for women-led IMEs? (Way forward)
- Expand Collateral-Free Credit Schemes: Widen the reach of schemes like PMMY and CGTMSE with targeted provisions for first-generation women entrepreneurs and flexible documentation norms. Eg: Lower the threshold for loan amounts and simplify eligibility for Udyam-registered IMEs.
- Strengthen Financial Literacy and Credit Counselling: Launch grassroots training programmes in regional languages to raise awareness about credit products, budgeting, and digital banking. Eg: Tie-up with SHGs and local NGOs to educate women in rural and semi-urban areas.
- Mandate Gender-Sensitive Banking Practices: Instruct public and private banks to set quotas for women-led MSME lending, and monitor disbursal with gender-segregated data. Eg: Introduce incentive-based targets for bank branches lending to women-run enterprises.
Mains PYQ:
[UPSC 2021] Can the vicious cycle of gender inequality, poverty and malnutrition be broken through microfinancing of women SHGs? Explain with examples.
Linkage: The article explicitly highlight the how government schemes like the Pradhan Mantri MUDRA Yojana (PMMY) aim to support self-employment and financial independence for women, which aligns with microfinancing efforts. This question is highly relevant as it directly addresses the effectiveness of “microfinancing of women” as a tool for empowerment and breaking negative societal cycles.
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