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Small businesses, big challenges – How will female-owned micro-businesses recover from Covid-19?

MSMEs have proven key to long-term job creation – employment in the sector has risen from 23.9 million in 2000-01 to nearly 111 million in 2019-20, making them the second largest employer after agriculture. MSMEs are thus essential to raising India’s low female labor force participation rate, a mere 24.5% in 2018 (PLFS, 2018-19), with women-owned enterprises having the potential to generate 150-170 million new jobs by 2030 (Bain, 2019). However, of the 61 million proprietary MSME enterprises in India, only 20% are women-owned (MSME Annual Report, 2019-20).

Immediate Impact of COVID-19 – Income losses

Prior to COVID-19, women-owned enterprises were concentrated in sectors heavily hit by the pandemic – 35% in personal services, 31% in apparel and textiles and 15% in food and other services. Consequently, 82% women-owned enterprises reported temporary closures immediately after the national lockdown, in March 2021 and half of them indicated these closures would be permanent (IWWAGE, 2020). Female entrepreneurs have had to contend with unclaimed inventories owing to order cancellations and higher raw material costs (SEWA Bharat, 2020). A dipstick survey by Nikore Associates with jute entrepreneurs revealed massive income losses, upto 60-70% of annual income due to cancelation of physical exhibitions and fairs.

Working Capital Crisis

Access to finance has been a key challenge for MSMEs historically with the sector facing a credit gap worth $260-330 billion (RBI, 2019). Despite having higher profit margins than male-owned enterprises, 31% vs. 19%, women entrepreneurs face double the rejection rate (19% vs. 8%) and receive merely 5% of total MSME lending from public sector banks (IFC, 2018). As formal institutions rely on credit history and collateral to assess credit worthiness, women entrepreneurs are disadvantaged due to limited land ownership – only 14% of the asset base of MSMEs comprises immovable assets like land and buildings, with only few of these owned by women (IFC, 2018).

COVID-19 further widened the financial access gap for women entrepreneurs. In a June 2020 sector-wide survey, 57% of micro-enterprises reported having no cash reserves while 65% dipped into their personal savings to manage operations (GAME, 2020). In a July 2020 survey of women-led enterprises, 72.5% reported a drop in revenue and 88% had to utilize personal savings (IWWAGE, 2020). Nikore Associates’ consultations with women entrepreneurs and associations in Andhra Pradesh, Telangana, and West Bengal between August-December 2020 revealed that most were unable to make loan repayments despite moratoriums due to the slow revival in business activity.

Challenges to pivoting and diversification

Even as COVID-19 has disrupted traditional sectors of the economy, several MSMEs are pivoting towards new businesses, particularly by leveraging digital tools. Female-owned enterprises, however, find themselves at a disadvantage.

First, social norms prevent women from accessing mentorship and training, especially if offered by a male mentee. In 2018-19, 4.9% of women received informal business training, vs. 12.9% men (PLFS, 2018-19). During the lockdown, only 9% of women respondents learned a new skill (IWWAGE, 2020).

Second, mobility restricts prevent women entrepreneurs from visiting consumer centers (often in urban areas) and directly interacting with consumers. For instance, women-owned MSMEs in the textile clusters fulfill large orders working from their homes but earn only a fraction of the product’s market price, as middlemen transport goods to consumption centers. Consultations with community based organisations in rural Rajasthan revealed that mobility restrictions on women had worsened during COVID-19. This makes it difficult for women’s MSMEs to understand changing consumer preferences and pivot rapidly.

Third, women use of digital platforms remains limited – only 29% of female account holders use digital payments in India, vs. 42% of male account holders (World Bank Global Findex Database, 2017), further prevents them from tapping into new opportunities (Bain, 2020). Jute entrepreneurs from West Bengal cited poor digital knowledge and inadequate training as key impediments in their ability to sell online.

Paving the Path to Long-term Growth

Targeted measures to facilitate the sustained growth of women-owned enterprises are crucial. During the pandemic, support from the National Rural Livelihood Mission helped women-led SHGs to manufacture nearly 224 million masks, 356,000 PPE kits, and 477,000 liters of sanitizer (Ministry of Rural Development, 2020). Moreover, in a sign of resilience, 54% of urban solopreneurs and small businesses reported shifting their business models to incorporate new products and digital sales (Bain, 2020). To further enable their recovery and long-term sustainability, Central and State government may consider several targeted support measures:

1. Increased provision of credit. The Central government could introduce gender targets for the capital it invests in businesses through the MSME Fund of Funds, a government scheme that aids businesses in their nascent stages, over the next five years. Such efforts were observed in COVID-19 policy responses in Colombia, which announced a $4.8 billion credit line for women entrepreneurs, and in Cambodia, where at least 20% of SME borrowers in its low-interest enterprise loan program must be women.

2. Innovative financial products. To ease women business owners’ credit access, agencies implementing government schemes must collaborate with community-based organizations and industrial associations to understand the unique requirements of the community they are serving and create financial products that address them. During the COVID-19 lockdown, the Mann Deshi Foundation introduced low-interest smartphone loans, after consultations with its women partners, enabling over 80% of them to buy their own smartphones and transition to digital platforms for business.

3. Preferential procurement. Under the GOI’s Public Procurement Policy for MSEs, 2018, 25% of annual procurement by Central Government entities must be made from MSMEs, including 3% from women entrepreneurs. The Government could consider raising this to 12.5%, to provide gender parity.

4. Incentivize sector diversification. Central and State governments can consider introducing additional fiscal incentives for women-led enterprises to enhance their participation in champion sectors, sunrise sectors and green sectors.

5. Incubation. Incubation centres and MSME accelerator cells, operated in collaboration with community organizations and industry associations, can extend professional support and mentorship to entrepreneurs. For instance, in 2018, the Government of Telangana’s "WE Hub" promoted women-owned enterprises by providing marketing and legal services, training and technical support. This programme has incubated 148 new start-ups and supported 276 start-ups since 2018 (Bain, 2019).

Co-author: Ashruth Talwar; research and writing assistance:Ruchika Gallani

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Views expressed above are the author’s own.



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