Metropolitan cities across India have long emerged as major markets of global brands. Tier 2 and Tier 3 cities have, as a result, begun to take over as the ideal market for Indian entrepreneurs, especially women entrepreneurs. For women-led startups, tier 2 and tier 3 cities offer enormous growth opportunities and lesser competition compared to metropolitan Indian cities like Mumbai, Delhi, and Bangalore.
The relatively untapped market potential, increasing digital landscape, and supportive government initiatives in tier 2 and tier 3 cities help rural women entrepreneurs scale their businesses at ease. Markets in tier 1 cities are frequently more saturated, which allows women entrepreneurs in tier 2 and 3 cities to establish a strong foundation and a loyal customer base.
The opportunities available to micro, small, and medium enterprises (MSMEs) led by women are further enhanced through schemes like Beti Bachao Beti Padhao, Lakhpati Didi, and NITI Aayog’s Women Entrepreneurship Platform. Aside from encouraging women to take up newer roles as business owners, these schemes are also fostering a culture of digital entrepreneurship in tier 2 and 3 cities.
With the advent of digital entrepreneurship, women business owners are increasingly turning to online methods for starting and running businesses. These businesses often leverage digital technologies and platforms in order to create, market, and sell their products or services. E-commerce for women is becoming increasingly appealing as rural entrepreneurs can easily market their products or services to the relevant customer base.
Key Insights from Competitors
In tier 2 and 3 cities, women in businesses face several challenges in availing loans for conducting their operations. In these regions, only about 3% of women entrepreneurs are able to get access to external and formal funding methods such as bank loans and equity funding. However, in tier 1 or metropolitan cities, women often resort to personal savings or collateral like gold and property to fund their businesses, making it significantly easier for them to operate successfully.
Other challenges faced by women entrepreneurs in tier 2 and 3 cities include structural barriers, such as a lack of assets in their names – which makes it difficult to avail loans formally. Additionally, many women in smaller cities require a male member to sign off on any financial responsibilities, making it especially challenging for women entrepreneurs in small towns to operate.
However, it is also important to remember companies like Amul, which are part of the Gujarat Cooperative Milk Marketing Federation (GCMMF). Led by women organised in cooperatives, GCMMF was instrumental in being among the first cooperatives for empowering women entrepreneurs from across the state of Gujarat.
Cooperatives and self-help groups have long helped women entrepreneurs in non-metro cities blossom into their own. However, for women seeking to start their own businesses or for women-led startups, the route to formal funding remains challenging.
Why Access to Business Loans is Critical
Women entrepreneurs in tier 2 and 3 cities require more funding than most, for a host of reasons. For starters, small-town businesses require more work to develop their operations and marketplace than businesses in larger, more metropolitan cities.
Access to funding for women entrepreneurs can often be challenging, but business loans offered by reputable banks and non-banking entities are changing that. Rural women entrepreneurs turn to availing business loans for a range of reasons. Some of these have been mentioned below:
- Growth and Expansion:
With a business loan, MSMEs led by women can expand their existing business and even opportunities. They can reach out to larger markets, expand their operational base, and perform a range of functions that they may have been unable to without the funds. - Unsecured Loans:
Business loans are significantly better than availing personal loans for women-led startups as the former enable entrepreneurs to avail loans without any collateral or guarantor. For rural women entrepreneurs who may not have familial support, these kinds of loans can be game-changers for their business. - Higher Loan Amounts:
Many banks and non-banking financial companies (NBFCs) offer higher loan amounts while providing business loans compared to other kinds of loans. These loans are often the major factor behind the success stories of women entrepreneurs as they may often not have the capital to start their business. - Tax Benefits:
Availing a business loan can offer women entrepreneurs a range of benefits, including in terms of taxation. Across industries, whether it’s women entrepreneurs in agriculture or women entrepreneurs in manufacturing, benefits in taxation are an advantage for all. Interest on business loans are often tax-deductible, making them an easier option for raising capital than most others. - Improving Credit History:
A good credit score is essential for businesses to function smoothly over the long term. In order to build a credit score, businesses must avail loans and make timely repayments. For small town businesses, especially those led by women, building a credit score is important as it allows them to avail more credit in the future at more favourable terms. - Financial Stability:
Since most businesses run on a credit cycle, there may be times when credit availability is low. For such times, business loans are an ideal tool. - Meeting Operational Requirements:
Running a business involves incurring several operational expenses, such as paying staff salaries or upgrading equipment or even simply purchasing stationery for the entire office. A business loan can often come in handy in meeting such expenses, especially when there is a lack of funds. - Professional Training and Certifications:
For women entrepreneurs in technology and women entrepreneurs in the services sector, professional training or certification can often come in handy while setting up their business. Professional training can help them gain new and required skills, while certification can help them bag prestigious clients. A business loan can often prove handy while pursuing such qualifications for women running businesses in tier 2 and tier 3 cities. - Marketing and Advertising Activities:
Marketing and advertising campaigns and related activities are essential for running a business in a small town. Such activities expand the market base and help in promoting businesses run by women entrepreneurs. Due to a paucity of funds for such activities, businesses may suffer from a lack of customers or clients. To avert such challenges and ensure marketing activities are carried out efficiently, women business owners may often turn to business loans. - Initial Startup Capital:
Finding the seed money to set up a business can often be one of the major challenges faced by women entrepreneurs. In such situations, a business loan can often be the ideal method for setting up a business. These funds can be used for setting up an office and buying the initial inventory required for the business. This is especially true for women entrepreneurs in manufacturing, where credit cycles are long and unpredictable.
Major Loan Schemes and Financial Support Options
For women-led startups, especially in tier 2 and tier 3 cities, there are several financing options available in the form of loans and support schemes. Read on to learn more about a few of these.
- Government Programmes:
There are several government schemes for women entrepreneurs in India. Many of these help women entrepreneurs set up their business or keep them running by offering operational funds. Some of these programmes include:- Stand-up India:
This scheme, launched by the Government of India, allows women entrepreneurs to raise between ₹10 lakh and ₹100 lakhs for setting up a greenfield project. The loan can only be availed by women entrepreneurs in agriculture, women entrepreneurs in manufacturing, and women entrepreneurs in the services sector.
Along with the loan, borrowers can benefit from hand-holding support from the Small Industries Development Bank of India (SIDBI), which includes mentorship for women entrepreneurs, training, and skill development. - Pradhan Mantri Mudra Yojana (PMMY):
A flagship scheme of the Indian government, PMMY facilitates credit up to ₹20 lakh for micro businesses, including MSMEs led by women. These loans can only be availed by income-generating businesses in the non-farm sectors from member lending institutions, which include public and private sector banks, NBFCs, and micro finance institutions (MFIs).
The scheme is classified into four categories to differentiate the stage of growth of businesses and identify their funding needs. - Stree Shakti Yojana:
Another flagship scheme of the central government, the Stree Shakti Yojana enables women-led startups to avail loans up to ₹50 lakhs. For loans exceeding ₹2 lakhs, borrowers can avail a 0.5% concession on interest rates. This scheme also offers a flexible repayment period of 36 months, with a one-month moratorium; enabling women entrepreneurs to make repayments in alignment with their cash flow. - Annapurna Yojana for Women:
The Indian government launched the Annapurna Yojana for women entrepreneurs looking to start or expand their food-related business. Under this scheme, women entrepreneurs can avail up to ₹50,000 for purchasing kitchen equipment and other essentials for their business.
- Stand-up India:
- Bank Initiatives:
Aside from government schemes that enable banks and other financial institutions to disburse loans on their behalf, several banks also offer their own schemes for empowering women entrepreneurs. Learn more about these offerings below.
- Cent Kalyani Scheme:
Offered by the Central Bank of India, the Cent Kalyani Scheme provides a range of benefits to women entrepreneurs in small towns starting their own business or expanding or modernising their existing one. Through this scheme, borrowers can avail up to ₹1 crore and repay them over a period of 84 months. The loan benefits borrowers by offering a 6-month moratorium on repayments. - BMB Shringaar:
Offered by the Bharatiya Mahila Bank, a part of State Bank of India, the BMB Shringaar provides loans to women entrepreneurs looking to start or expand their beauty parlours and spas. To combat challenges faced by women entrepreneurs in the beauty and wellness industry, this scheme offers up to ₹1 crore without any collateral. - Synd Mahila Shakti:
Launched by Syndicate Bank, Synd Mahila Shakti Scheme grants financial assistance to women entrepreneurs in retail. Offering up to ₹5 crores at a concessional rate, the scheme requires no documentation and levies zero processing charges from borrowers.
- Cent Kalyani Scheme:
- NBFC Initiatives:
In line with government schemes for women entrepreneurs, several NBFCs have also launched initiatives for supporting MSMEs led by women. Lendingkart, for instance, offers unsecured business loans of up to ₹35 lakhs with a repayment tenure of 3 years. Its quick approval and disbursement facilities ensure that women-led startups are never short of funds while growing their business. - Emerging Financial Models:
The growing fintech industry in India is giving rise to newer trends in the lending space. Two major trends to have emerged include lending-as-a-service and peer-to-peer lending, where individuals can offer capital to others. The advantage of these models for women entrepreneurs lies in their little to none interest rates during repayment.
State-Level and Sector-Specific Initiatives
Across India, different state governments have launched their own schemes providing loans to small-town businesses led by women. For instance, Gujarat has the Mukhyamantri Mahila Utkarsh Yojana, offering women residents interest-free loans of up to ₹1 lakh. Meanwhile, the West Bengal Gramin Bank offers a financial lifeline for rural women entrepreneurs looking to set up or expand their business units.
Aside from these, there are several business loans offered to women across different sectors, including women entrepreneurs in manufacturing and women entrepreneurs in agriculture.
Conclusion
Such initiatives are significant in empowering women entrepreneurs across India to follow their dreams and aspirations. Regardless of their family condition or origin, women from across all walks of life can now set up their own units across industries.
Aside from government schemes for women entrepreneurs, newer models of financing are now becoming prevalent – resulting in increased empowering of women across India.
