Beyond the stereotypes: Addressing the financing and growth challenges facing women entrepreneurs

I’ve always enjoyed meeting the small business entrepreneurs we work with, who come from a diverse range of backgrounds and experiences. Each interaction leaves me a little bit more in awe of just what the entrepreneurial spirit can accomplish, given the right kind of support. During one of my visits to a bustling commercial hub in Karnataka, I met Renuka.

When she had started the business, she didn’t have enough capital to properly invest in it and zero support from traditional lenders who dismissed her business as “too risky”, but Renuka believed in her ability to make the most of her entrepreneurial potential. With a business loan, she was able to invest in machinery and hire workers, significantly increasing production. Her income grew steadily, enabling her to send her children to a better school, and even invest in a home, which she had never imagined possible.

What really stayed with me is how she beamed as she told me how much freedom being a woman entrepreneur had given her, and how happy it made her. To me, Renuka’s journey is the perfect example of women’s incredible ability to break free from a cycle of limitations and stereotypes.

Stories like Renuka’s underscore a profound truth, that empowering women entrepreneurs can transform families, communities, and economies. Yet, the reality is that women business owners, particularly in the MSME sector, often face disproportionate barriers when it comes to accessing capital. This financial exclusion persists despite the growing participation of women in the workforce and their immense potential to contribute to India’s economy. At present, the Female labour force participation rate (FLFPR) in India stands at 41.7%, yet women constitute only 14% of entrepreneurs in the country.

Of the nearly 64 million MSMEs in India, only 22% are owned by women, women’s share in ownership drops from to 12% in the small enterprises segment, and further to 7% in medium enterprises. Why the gap? The answer lies in deeply rooted gender biases and structural barriers within our society and financial ecosystem.

An enduring gender gap

India’s ambitious economic growth goals cannot be met without the full participation of women. Over the years, shifting societal norms and policy changes have contributed to a rise in female workforce participation to the current levels. However, the numbers are still far from equitable, particularly when it comes to entrepreneurship, although we are witnessing positive movements across the board, right down to the last mile. This shift can open the door to a massive untapped opportunity, since data shows that increasing women’s participation in business could add trillions to India’s GDP.

The challenge is not about capability, but about access to resources, and opportunities. Women entrepreneurs face gender biases both in society and the financial sector. Unconscious gender bias shapes perceptions, leading investors and lenders to view them as high-risk borrowers, despite their capabilities. Many women do not have property or significant assets in their name, making them ineligible for collateral-based loans. Even when they do secure funding, loan amounts tend to be smaller, limiting their ability to scale.

Unique set of challenges

While access to financing remains one of the biggest roadblocks for women entrepreneurs, they also face a complex web of challenges that go beyond financial barriers. Balancing family responsibilities further constrains their entrepreneurial journey, as societal norms still expect women to prioritise home and caregiving duties. Indian women in the working age category of 15 to 60 years spend an average of 7.2 hours a day on unpaid domestic work. This often limits the time, flexibility, and risk-taking capacity they can devote to their businesses.

Most women MSME entrepreneurs are also at a disadvantage when it comes to making the most of government subsidies and benefits, as well as leveraging networks and connections. This is partially related to technology access, which is another critical challenge.

As digital platforms become essential to business success, many women entrepreneurs lack the digital literacy or resources to fully leverage them. According to GSMA, women in India are still 30% less likely than men to use mobile internet. So while online marketing and e-commerce are transforming small businesses, without targeted support, many women are likely to remain outside the ambit of these advancements and their benefits.

The case for gender-smart lending

There is a clear demand for financing among women MSME entrepreneurs. This is evidenced by the fact that women entrepreneurs account for about 68% of the total Mudra loans disbursed. This highlights a strong demand for early-stage capital and small-ticket loans among women-owned MSMEs and underscores the crucial role of accessible financing in enabling women to start and expand their businesses.

Closing the gender financing gap will require more lending models that take women’s unique challenges into account. Collateral-free lending that assesses businesses based on cash flow rather than fixed assets can help address one of the most fundamental barriers to financial inclusion. Automating decisioning through tech-led models can help eliminate the invisible biases that often sway credit decisions against women borrowers.

The impact of supporting women entrepreneurs with formal financing is clear. Our MSME Insights survey (released in March ‘24) found that women-owned MSMEs who received formal credit created 11% more jobs for women than male-owned businesses, with a third of all new jobs in these enterprises going to women.

They account for 63% of all new jobs created in the sector and demonstrated a 19% increase in monthly net income. Women entrepreneurs have also consistently demonstrated higher repayment rates on loans, with default rates as low as 3.4% compared to 4.6% for male borrowers. It also revealed that women-led MSMEs in manufacturing outperform their male counterparts in several key areas. These numbers prove that when women are given the right support, they secure success for themselves, while driving broader economic growth and inclusion.

However, access to credit alone is not enough. Women entrepreneurs also need mentorship, business training, and access to networks that can provide them with the knowledge and confidence to scale their businesses. Programs that focus on financial literacy, technology adoption, and market linkages can also significantly enhance the long-term success of women-led enterprises. Both the government and the financial services ecosystem have a responsibility to extend this comprehensive support to women entrepreneurs.

Making way for a systemic shift

As we’ve seen first-hand from Renuka’s journey, and from that of thousands of other women entrepreneurs, their participation in the business landscape is not only about economic empowerment. The impact extends far beyond the financial implications of income growth and job creation, effecting a generational shift, which allows far more women to become empowered and independent.

It opens doors for more women to enter the workforce, and inspires young women and girls to pursue education and employment by creating positive role models. It is also instrumental in challenging gender biases and changing societal perceptions of what women are capable of.

According to data from the United Nations, women reinvest up to 90% of their earnings back into their families and communities, amplifying the impact of their success. By building inclusive financial systems and providing the right support structures, we can unlock the full socio-economic potential of women entrepreneurs.

The Government of India has set an ambitious target to achieve a GDP of $30 trillion by 2047. According to data from Bain & Company, a nearly 45% contribution from the country's women workforce will be integral to achieving this economic goal. The path forward requires more than just policy shifts. It calls for a fundamental change in how we view women as business leaders, risk-takers, and drivers of economic growth.

In addition, empowering women at the last mile has the potential to radically alter the nation's social fabric, creating a more gender-equal environment for future generations. Knowing what we know now, the question is no longer whether women entrepreneurs deserve a seat at the table. The fact is, we can no longer afford to keep holding them back.

Hardika Shah, Founder & CEO, Kinara Capital