She Means Business: Women Leading the Charge in Indian Startups

Enhancing women's leadership roles not only boosts business profits but also signifies a more significant shift in India's Micro, Small, and Medium Enterprises (MSMEs) sector toward gender inclusivity. However, even with these gains, women-owned businesses still confront significant financial obstacles, with an estimated $158 billion financing gap; this gap is exacerbated by the fact that 90% of women entrepreneurs rely on informal financing channels. Overcoming these hindrances is crucial to unlocking the unrealized economic potential of women entrepreneurs, which could create over 30 million new businesses and up to 170 million jobs by 2030. Using technology and raising awareness of government initiatives are two critical steps in this direction.


The Financial Benefits of Female Leadership

According to research by MSCI ESG, companies with outstanding female leadership have a distinct advantage over their colleagues, with a 10.1% return on equity vs 7.4% for their peers. According to a study conducted between 2002 and 2014, Fortune 1000 businesses led by women outperformed the S&P 500 regarding returns.

The government's initiatives to assist women in business can be partly blamed for this development. Financially speaking, women own 56% of Jan-Dhan Yojana accounts as of 2022, and from 2017 to 2022, the percentage of female borrowers climbed by 1.5 times compared to the rate of male borrowers.


The Story of Female-Led MSMEs in India

Over the last ten years, women have led more MSMEs in India than ever. From 13.72% in FY 2010–11 to over 20%, women are in charge of 19.43% of the enterprises listed on the Udyam platform. A portion of this expansion can be attributed to government measures to Women only comprise 28% of active borrowers and hold 19% of all outstanding credit. Furthermore, just 30% of women, compared to 34% of males, have health insurance, underscoring persistent disparities in financial assistance and participation.



Obstacles Women-Owned MSMEs Face

The growth of women-owned MSMEs in India represents a dramatic movement toward gender inclusion, indicating a modification of traditional standards and the unrealized economic potential of female entrepreneurship. However, with an estimated $158 billion financing shortfall, the financial landscape for women-owned MSMEs presents substantial obstacles. Consequently, nearly 90% of these women turn to unofficial funding sources, which impedes the expansion of their businesses.

With women 15% less likely to have bank accounts and 20% less likely to have taken out formal loans from financial institutions, women's access to formal financial services is still disproportionately low. Since 68% of women-owned SMEs with loan needs are either underserved or unserved, this discrepancy emphasizes a crucial area for assistance. They have many challenges because of restricted access to collateral assets. In 2021, women obtained only 5.2% of the total MSME credit from Public Sector Banks, indicating that financial institutions' assistance for the MSME sector remains unequal despite gender-neutral legislation.


Making Use of Economic Potential

India's economy might change significantly if women's entrepreneurship is encouraged. Encouraging women to start their businesses might create over 30 million new women-owned firms and generate up to 170 million jobs by 2030, significantly boosting India's GDP.

The study identifies four crucial areas for action to realize this enormous potential: expanding the capabilities of successful rural agricultural entrepreneurs, helping solo entrepreneurs and small business owners scale up, facilitating more expansive entry for more women to start businesses, and equalizing opportunities for high-impact entrepreneurs. Concentrated efforts in these areas could spur innovation, create jobs, and improve economic stability while also hastening the expansion of women-led MSMEs.


Making Use of Government Support and Technology

Governmental and non-governmental organizations must use technology to connect with female entrepreneurs. A more equitable approach to financial operations, such as loan allocations, is promised by machine learning (ML) technologies, which can reduce bias through data-driven credit rating systems. Thanks to these developments, which go beyond conventional banking restrictions, women will soon be able to make an estimated $770 million to India's GDP by 2025, marking an 18% economic growth.

The impact of government policies that provide financial access and resources to support and promote women entrepreneurs in India is hindered by issues related to awareness and implementation. Many female entrepreneurs still need to be made aware that these programs are available, and even for those who are, the details of the programs are frequently opaque. The lengthy and confusing application processes discourage women from applying, which lowers their involvement rate. As a result, some banks have started to phase out these programs due to the lackluster response. To guarantee that these supportive measures reach and are effectively utilized by their intended beneficiaries, efforts must be strengthened and expanded to increase the transmission of information and speed the application process.

Gender-inclusive economic growth is a challenging goal that calls for coordinated efforts from the public and private sectors. The World Bank highlights that for India to become a developed nation by 2047, it must expand at an annual rate of 8%. This target seems only possible if female labor force participation rises dramatically. In addition to advancing gender equality and economic empowerment, embracing and assisting women-led MSMEs fosters productivity, innovation, and long-term financial viability. India can set the path for equitable progress and prosperity for all by tackling female entrepreneurs' obstacles and utilizing their unexplored potential.

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