In an era marked by dynamic global economic challenges and the pursuit of inclusive growth, the pivotal role played by Micro, Small, and Medium-sized Enterprises (MSMEs) cannot be overstated. These enterprises, globally account for 90% of all businesses, generate 50% of global GDP, and provide livelihoods for 60 to 70% of the working population. They are the engines of innovation, creators of jobs, and the catalysts for domestic and regional development, enhancing local resilience and economic complexity. MSMEs kindle domestic demand, create jobs, innovate, and compete nationally and, potentially, regionally.
However, beneath these impressive economic contributions to the Global economy, there lies a stark reality - a gaping credit gap that hinders the potential of MSMEs. In Asia alone, the credit gap in the sector is estimated at $2.7 trillion, due to restrictions on finance, equity, and payment services (United Nations ESCAP, 2022). India, the largest of Southeast Asian economies, alone, requires $530 billion to bridge the credit gap in the MSMEs sector. The challenge of the MSME credit gap is further exacerbated for women-led MSMEs. Formal women-led MSMEs who comprise 20% of the Indian MSMEs sector face a 70% financing gap.
The COVID-19 pandemic further exacerbated an already precarious scenario, where in India alone, more than 3000 MSMEs led by women entrepreneurs were forced to close, primarily due to restricted business operations and lack of capital to sustain businesses. During the lockdowns, more than 72% of women-led MSMEs reported cash shortages as compared to 53% of the male-led MSMEs. Despite these setbacks, closing the financing gap alone for women-led MSMEs could add $ 770 billion to India’s GDP, despite women leading only 20% of these businesses.
The indispensable role of MSMEs as catalysts for social and economic progress, innovation, and capacity to generate employment is recognised by governments, and they increasingly recognize the need to support and empower particularly women-led MSMEs to achieve the agenda of inclusive growth globally. This commitment was reiterated through the recently concluded ‘Business-20’ (B20) engagement group with a communique that calls for a Responsible Accelerated Innovative Sustainable Equitable (R.A.I.S.E) agenda toward gender inclusion, just energy transition, and accelerated economic growth. The engagement group set progressive yet achievable targets for all G20 member states toward reducing the financing gap for MSMEs from 56.6% to 30% by 2030 and increasing the number of MSMEs with access to formal credit from 29.8% to 50% by 2030.
To inform and reiterate commitments from G20 member states and engagement groups such as B20, AVPN in partnership with Visa Foundation, convened a Women-led MSMEs Task Force at the B20 Summit in Bali in 2022 under the Indonesian presidency with the view to consolidate and table key recommendations to the Indian G20 presidency under the B20 engagement group. The taskforce brought together more than 30 diverse leaders from policy, corporations, and the social investment community to make key recommendations on the expansion and strengthening of women-led MSMEs in the Asia Pacific region (with a priority focus on developing economies in South and Southeast Asia) to promote sustainable and equitable economic growth and job creation in the region).
Through the G20 presidency from Indonesia to India, AVPN’s Task Force along with support from Accenture Development Partnerships (ADP) identified key barriers to scaling women-led MSMEs in Asia and recommendations for both public and the private sector to accelerate this scale-up across these 3 areas - supporting access to finance and markets for women-led MSMEs, enhancing capabilities to transform women-led MSMEs and role of women-led MSMEs’ in climate risk resilience and adaptation.
AVPN’s women-led MSME Taskforce recommendations are reiterated in Business 20’s communique R.A.I.S.E indicating prioritizing the MSME sector by both the public and the private sector.
Adopting blended finance mechanisms in enabling access to finance, credit, and the global value chain (GVC) for women-led MSMEs.
The B20 group urged governments to create a Credit Enhancement Fund (CEF) for MSMEs. Firstly, AVPN’s task force comprising social investors and impact firms consistently highlighted the need for expansion of sex-disaggregated data by both - governments and private sector players such as financial service providers. Lack of sufficient evidence on what is working and what deters the impact of an intervention / alternative financing model.
Secondly, the Task Force's recommendation on making global supply chains more gender-inclusive clearly reiterates the need for governments to consider addressing structural exclusion in the procurement process by implementing strategies such as incentivization for large corporations and MNCs to have a minimum procurement threshold for goods and services from women-led MSMEs, encourage ESG mandates and standards in procurement processes across financial institutions, corporations, and service providers in the value chain.
Thirdly, to enhance the expanse of markets women-led MSMEs can buy and sell in, facilitate cross-border trade regulations that are beyond a bilateral agreement and ease remittance norms, enable fast and convenient digital payments in local currency to improve incomes that can scale women-led MSMEs to next stage of growth.
Enhancing digital transformation through public-private collaborative interventions
The G20 Indian presidency clearly identified digital transformation for inclusion as a key focus area. Apart from the B20 group, Women20 (W20) and G20 EMPOWER groups also reiterated the need for digital inclusion programs through the launch of Tech-Equity’, a Digital Inclusion Platform through which girls and women can skill, upskill and reskill themselves in digital literacy, financial literacy, and other technical subjects.
Integration of such services through a shared services platform will enable women-led or owned MSMEs to access varied services - such as financial literacy modules, non-financial services support (such as marketing, branding, IPRs), and a peer network to learn from and address challenges to access to communities of other women entrepreneurs. While the government of India continues to work on this model through the _WEP_ platform, for such an integrated service to scale, the private sector must not only come forward to offer subsidized services but also be incentivized to do so. This will ensure a sustainable revenue stream for the private sector whilst establishing a strong business case for supporting women-led MSMEs. India’s initiative with the ONDC is a stepping stone towards a scalable integrated digital services platform in the right direction.
Leveraging Green Financing to address Risk Resilience and Climate Adaptation for Women- led MSMEs
Climate change continues to have intersectional impacts on gender inclusion. Exploring this key nexus in alignment with the G20 member states priorities, AVPN’s task force problematized and recommended a key way forward toward a gender-inclusive MSME sector that is not only climate resilient but also paves the way forward for green businesses.
AVPN’s task force called for action toward inclusive and sustainable economic growth by emphasizing that governments declare women-led MSMEs as priority sector lending for financial institutions to ensure they receive climate adaptation financing, (e.g., subsidies on loans for women-led MSMEs to buy government-approved or recognized adaptation machinery) and integrate women-led MSMEs in the national and sector-specific climate adaptation targets and plans to drive a focused and milestone driven approach for access to capital. Creating a funding framework that calls out taxation incentives for investors to fund women-led MSMEs will also enhance green financing needs.
Financial institutions and service providers can invest in gender-responsive capacity building powered by a collaborative data-driven approach by financial institutions, industry and research agencies on profiles, needs, and specific challenge areas to be addressed for women-led MSMEs at different stages of growth in different sectors.
To ensure risk-proofing of women-led MSMEs, financial service providers can customize their offerings to support the recovery of Women-led MSMEs during or/and post disasters by introducing milestone-based financial incentivization (e.g., interest rate subsidies, tax credits, and grants) for women-led MSMEs practicing sustainable practices to reduce their costs and enhance their eligibility to secure additional green financing. Financial institutions can offer microinsurance schemes with a series of subsidized premiums for specific low-income women-led MSMEs in trades such as street vendors, farmers, and weavers.
Ahead of the 2030 review of the SDGs, Indian G20 presidency, and beyond, governments and the private sector will need to continue to work together to inform the scaling of women-led MSMEs to enable a two-fold impact – that of women’s economic empowerment and of inclusive economic growth for nation-states. While governments can activate a conducive environment for private sector investments to increase, investors can leverage existing mechanisms to ensure a gender lens in investing toward women-led MSMEs globally, and in Asia. India has now set the stage for women-led development which is shifting the paradigm toward the right direction for a sustainable future.
This article has been authored by Tristan Ace (Chief Programme Officer, AVPN) and Kinkini Roy Choudhary (Asia Lead, Accenture Development Partnership )