24th February, Mumbai: Economic Times Online recently featured an article on ‘Mainstreaming Gender lens capital solutions for women-led SMEs’ which was authored by Trina Roy, Associate, Intellecap.

The article largely talks about how Gender Lens Investing (GLI) as an approach to promote social and/or economic empowerment of women, in addition to financial returns has gained traction in the past years.

In the article Trina talks about how India currently has more than 8 million women-led businesses that represent 13.76 % of all businesses in the country as estimated in the Sixth Economic Census. With improved education outcomes, targeted interventions by the government and private sector, and other socio-economic factors; women entrepreneurship has indeed witnessed a rise over the last couple of years. States such Tamil Nadu, Kerala, Andhra Pradesh, West Bengal and Maharashtra have the highest share of women entrepreneurs.

Applying a gender lens to budgetary allocations, the government as an impetus to promote women led entrepreneurship has taken certain steps. These have included measures such as expanding the Women SHG interest subvention programme to all districts, making one woman in every SHG eligible for a loan up to 1 lakh under the MUDRA Scheme, among others.

According to the author, while these are welcome moves by the government to ease the access to finance challenge – an acute challenge faced by women entrepreneurs, the time is right to initiate conversation about bigger reforms.

She opines that, Gender Lens Investing (GLI), an approach to promote social and/or economic empowerment of women, in addition to financial returns has gained traction in the past years. Adopting the GLI approach, investors seek to channel debt and equity to businesses that create positive gender outcomes through various strategies. Some of these include supporting women as entrepreneurs, investing in development of products and services benefiting women, and channeling capital in businesses having a high share of women employees and in their value chains.

For India to unlock the potential of women entrepreneurship, concerted strategies to catalyze GLI and develop effective financing products for MSMEs (Micro, Small and Medium Enterprises) in particular will be critical. In this article we explore how the GLI philosophy is applied to supporting women entrepreneurs, specifically in the SME sector.

Elaborating on it further, she says that supporting women led SMES through targeted demand driven financing approaches and products lies at the heart of transforming the capital access scenario for women entrepreneurs in India. Depending on the type of scale and sector of an enterprise, multiple approaches can be explored.

First, after assessing the sector and sub sector category of MSMEs, tailored financing products combined with capacity building support can be developed. Majority of women led enterprises being subsistence businesses do not typically attract capital from investors or banks. Many of these women-led SMEs in India operate in sectors such as textile and handicrafts, food processing, beauty and wellness and are overwhelmingly concentrated in the micro and small scale business segment. Their particular needs are significantly different from high growth businesses to which the traditional start up ecosystem caters or steady businesses to which banks provide capital support. Bearing in mind their business models and market needs, sector or cluster specific financing products that provide patient capital aligned to growth rates and pay back periods would be instrumental to spur growth.

Second, blended financing products combining different types of capital – debt, equity and grant can also support women-led SMEs in underserved geographies or in sectors with low profit margins. With flexible capital, blended financing products reduce capital costs and can be leveraged effectively to overcome the problem of low returns and high risks; concerns that often limit traditional private sector investments. As an investment structure mixing concessionary and for-profit capital, the Women Entrepreneurs Opportunity Facility (WEOF) is a remarkable example of an effective blended finance product deploying capital to a segment often overlooked by financial institutions and global investors.

Third, innovative structuring of gender financing through development impact bonds, guarantee bonds, soft loans can also be explored to meet the needs of women entrepreneurs in the MSME sector. These serve as effective mediums to bridge social goals and economic returns. Experiments with development impact bonds and outcome bonds are at its nascent stages and have been promising in areas like health and education in India presently.

How would the DIB work? Here she suggests that adapting similar structuring to create a gender focused impact bond would channel private capital toward women entrepreneurship and augment the Government of India’s efforts to promote it. DIBs bring together the public, private and philanthropic sectors and align their interests towards a common set of objectives. Commercial investors pump in capital in a DIB, and the DIB in turn on-lends growth capital at low interest rates to a target women-led SME segment. Over the agreed tenure period, women-led SME repay back the capital with the given interest to the DIB. An independent agency monitors the outcome in terms of scale achieved by the SMEs and on its basis, a donor(s) and/or the government makes a payment to the DIB. Commercial investors are paid back by the DIB using the capital repayment by SMEs and the outcome based payments from the donors or government.

Other experiments including guarantee fund, soft loans, and interest rate subventions are viable alternatives to consider as well. To bring about a paradigm shift, efforts to build capacity and ease capital access must work simultaneously. Serious efforts by both the government and private sector are necessary to steer and mainstream Gender Lens Investing for women entrepreneurs in India.

In her conclusion she says that going forward, building a strong evidence case for GLI will be an imperative first step. Supporting data-backed research to provide insight into the performance and potential of such SMEs is crucial. Additionally, mapping stakeholders like investors, incubators, experts, enterprises, to identify opportunities of collaboration will strengthen its case. The current measures targeted towards women in SMEs provides the initial boost and is a larger signal for other ecosystem players, specifically the private sector to come forward and build on this momentum.