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Gender divide in MSMEs

Women led MSMEs in India need special attention and a foolproof mechanism, involving support from central banks, to financially shore up this weak sector.

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By Sujit Bhar

With the country—five states—having already launched into assembly elections, it seems pertinent and timely to bring to light where women (50 percent of the electorate) stand as far as their fiscal health is concerned. Among this section of the electorate, a very small number are entrepreneurs, especially in the MSME (Micro, Small and Medium Enterprises) sector. A positive reflection of their financial status can direct the general perception of the entire 50 percent of the electorate, plus of all family members who are eligible to vote, dependent on them. With more assembly elections due soon, it will be wise for the government—at the Union and at the state levels—to ensure that this weak section be catered to.

It is, therefore, necessary to study the condition of not only the MSMEs in India, but specifically, the role of women within this sphere. The first reason why this is needed is, of course, the already mentioned 50 percent electorate power that women enjoy, but the second is more important—their economic condition within the overall MSME ecosphere. Not that this special area has escaped the notice of the MSME ministry. There are several interesting indicators in the MSME ministry’s annual report 2020-21. Some are bright, some not that much.

If women’s empowerment has been any yardstick, especially at the MSME level, West Bengal leads the country by miles. According to the report, the percentage share of states in MSMEs owned by women shows Bengal having 23.42 percent owned by women. The second on the ladder, Tamil Nadu, is way down at 10.37 percent. Kerala, even with high levels of literacy, is further down at 4 percent, with the National Capital at a mere 0.7 percent.

What does this actually mean? The average income patterns in these states vary wildly, but more may be required for actual women’s empowerment than may have been laid down in doctrines. One interesting advocacy of the ministry (and duly reciprocated by the ministry of finance) is that Central Public Sector Units (CPSU) are to make mandatory procurement of 3 percent from women entrepreneurs. This falls within the overall 25 percent mandatory procurement from MSMEs. The report says that during 2020-21 so far, CPSUs procured goods and services worth Rs 357.81 crore from 2,374 women MSEs. This is not a large figure, but if the trend gains traction and general acceptance, more could come the way of women entrepreneurs and at least the process of empowerment could begin.

So far, there has been allotment through categories. For example, the doctrine wants to “ensure fair inclusion of SC/ST category, women entrepreneurs and entrepreneurs from NER, Hill States (Jammu & Kashmir, Himachal Pradesh & Uttarakhand) Island Territories (Andaman & Nicobar and Lakshadweep).” The Aspirational Districts/LWE Districts have also been included and “subsidy has also been made admissible for investment in acquisition/replacement of plant & machinery/equipment & technology up-gradation of any kind.”

All that sounds pretty impressive, except in two areas. The first is that the entire “women entrepreneur” category has been sub-divided into prioritised groups to such an extent that the share of the pie for a general entrepreneur (woman) would be too small to make any significant difference. The second is that it would now be left to the ministry of finance to empower bank branch managers as well, to fearlessly give low interest loans to such enterprises. One has to understand that not all women-led MSME units will be able to show CPSU orders. Hence there has to be a mechanism to tackle this very specific and weak sector in the business environment of the country. Nobody can assure returns on loans advanced for this section, exactly as these entrepreneurs cannot be assured of timely payments from their clients.

The ministry has a Credit Guarantee Trust Fund for MSES (CGTMSE) with a provision of collateral-free credit. This, as per the report, guarantees extension of collateral free lending to Micro and Small Enterprises through banks and financial institutions (including NBFCs). The report says: “The Scheme covers collateral free credit facility (term loan and/or working capital) extended by eligible lending institutions to new and existing micro and small enterprises up to Rs 200 lakh per borrowing unit. The guarantee cover provided is with a uniform guarantee at 75 percent of the credit exposure above Rs 50 lakh and up to Rs 200 lakh (85 percent for loans up to Rs 5 lakh provided to micro enterprises, 80 percent for MSEs owned/operated by women and all loans to NER). A composite all-in Annual Guarantee Fee up to 1.80 percent per annum of the credit facility (2 percent for retail trade) sanctioned is charged on the outstanding loan amount, with the minimum Guarantee Fee being 1 percent p.a.”

The report also said that as on December 31, 2020, cumulatively 48.28 lakh proposals had been approved for guarantee cover of Rs 2.46 lakh crore. This is a very noble effort. It assures work for these specific MSME units from order book assurance to credit guarantees. However, there are many slips in between, that need to be addressed. Most MSME units of the country are non-registered. Banks would require this registration signature. It would be nice if the MSME ministry and the finance ministry tie up to create cells within banks that can help MSME units avail of this registration free of charge. This will not only help banks in loan processing, but will, in the long run, also help the government keep a tab on the progress of its schemes on the social and the financial fronts.

Today, non registered units will get no assistance whatsoever from banks or financial institutions, even if the owner can manage an appointment with the bank manager. Also, it has been a known practice now that only those units which already have a loan running with the banks will be considered. Banks do this to ensure the credit worthiness of the client, considering the repayment history. However, with the Covid-19 pandemic having dealt a death blow to this sector, orders had been so hard to come by that loan sanctions dipped to all-time lows. Banks have been sitting on large liabilities, not venturing in to create loan assets that could balance their books. The situation with banks is also precarious and a take-off on loans sanctioned will help them.

Another sticking point is the rather limited power that has now been given to bank managers. There was a time when each bank manager had a personal capacity to grant loans up to a certain amount, above which the application had to go to the regional or even the national level. However, some bad-apple managers created huge NPAs through fraudulent practises, and powers of bank managers were curtailed. They now act as mere post offices, not willing to stick their necks out even on small loans, lest they become non-performing assets. Banks managers are liable to be held personally responsible for this. This goes directly against any governmental industrial development policy that can eventually see a social change.

The morale of this story is: do not punish everybody (bank employee) because of the intransigence of a few. The overall beneficiary of such social schemes is the public, and it would be up to the government to keep a close tab on managers’ loan advances and recovery efforts. There is nothing gained by throwing the baby out with the bath water.

The other area is technology. A MSME unit which has been dealing with aluminium casting in one field, for example, may have run out of orders for that particular field—this has happened, with entire industry sectors being crippled through the economic slowdown that preceded the pandemic and after the pandemic. However, its casting unit and manpower may have remained intact. It will be necessary for the government, with assistance from the bank and industry redevelopment organisations, to retrain the men and refinance a change in the casting plant to cater to another section of industry which is still up and running. The owner of the small unit may not be left with the financial muscle or have new ideas for redeploying her labourers.

Such rejig of industry can save a dying unit and conserve jobs. When women lead an organisation, they turn out to be more responsible towards their employees and the unit. Focused investment in these areas can revitalise several units in the manufacturing sector. Similar is the experience in the service sector. A host of small companies catering to the hospitality and tourism sector, for example, have been virtually shuttered. It is not viable to reopen these companies as before, but with a little re-skilling, these organisations may be able to find their feet again, in possibly another avatar. Women entrepreneurs have a large presence in this sector.

The MSME ministry’s endeavour, so far, has been laudable, but a lot more needs to be done to resuscitate dying firms.

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