Wednesday, Aug 20th

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Why loans for women entrepreneurs are not taking off

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Almost all public sector banks have special loan schemes for women entrepreneurs. But low awareness and a passive mindset ensure that there are very few takers

When Neeta Kumar, a 41-year-old entrepreneur from Lucknow, decided to set up an artificial village in the outskirts of the city, it took her a year-and-a-half to manage funds for her project. While running from pillar to post with her project report in tow, Kumar had a hard time convincing bank officials that Kala Gaon, her dream venture, would be a viable business proposition and that she would not default on her loan. During the course of her struggle for funding she even bumped into people who asked her to set up a shopping mall instead of a marketplace for artisans. Her ordeal finally came to an end in the spring of 2006 when she threw open the gates of Kala Gaon supported by a Rs 60 lakh loan from Punjab National Bank. Today, the theme village is a major tourist attraction in Lucknow and has given a platform to several rural artisans and sculptors.

Kumar’s story is quite common in a country where women are still hesitant to don the entrepreneur’s hat. Take the case of Kavita Singhal, a jewelery designer. “I belong to a family that has been in jewelery designing for years. Though my family was supportive of my decision to enter this trade, I needed funds to start my own venture,” she says. Singhal initially found it difficult to convince banks that she would be able to market her products and run a profitable venture. Eventually, she managed to convince Canara Bank, where she has had a savings bank account for many years, to grant her a loan of Rs 1 lakh. Today, she manages to sell jewelery worth Rs 30,000 to 35,000 per month through her own outlet that she plans to expand in the near future.

Some Schemes for Women Entrepreneurs
Bank of India Priyadarshini Yojana
Canara Bank CAN Mahila
Central Bank of India Cent Kalyani
Dena Bank Dena Shakti
Oriental Bank of Commerce Orient Mahila Vikas Yojana
Punjab National Bank Mahila Udyam Nidhi Scheme
Punjab & Sind Bank Udyogini Scheme
State Bank of India Stree Shakti Package
State Bank of Mysore Stree Shakti
SIDBI Mahila Udyam Nidhi
Tamilnad Mercantile Bank Mahalir

Almost all public sector banks run special schemes to fund women entrepreneurs; yet it proves to be difficult for women to acquire loans easily. This is partly because of the mindset of bank officials who believe that women will have to run that extra mile to market their products, making it hard to make decent sales. Low awareness about these schemes is another reason for their slow uptake. In this article, DARE gives an overview of the various schemes offered by nationalized banks, challenges that women entrepreneurs face when it comes to avail funding and tips on how to make the going easy.

The DNA of a woman entrepreneur
DARE spoke to a number of women entrepreneurs during the course of research on this story and found that there is a common thread linking most, if not all, of them. A typical woman entrepreneur belongs to two broad categories — she is either from a financially secure background and is willing to take risks with her own venture or she is from an economically weaker background and wants to start an enterprise to sustain her family. Ganesh Prabhu, a professor at the Indian Institute of Management Bangalore, corroborates the point and says, “Most of the women who come to women entrepreneurship workshops are either from well-to-do-families, who think the risk is worth taking or those who belong to the lower-income group and are interested in starting a business for survival.”

Perceptions
What women say What banks say
Not aware of special schemes Many women are usually silent partners, included just to get the benefit
A relief of just 0.25 to 1% in interest rate is not worth the trouble Skeptical whether women will be able to market their products and services; once convinced, do not hesitate to give loans
The process is too time consuming and requires far too many visits to the branch Not many women come seeking loans for their startups
Often do not get what is promised Have special cells for helping entrepreneurs, especially women

Women, typically, take up their hobbies as a business, especially when starting their enterprise singlehandedly. They generally get into businesses that interest them. This is evident from the fact that most women prefer starting home-based businesses from toy making and fashion designing to creating computer software.

According to Prof. Prabhu, “A woman entrepreneur will typically not think that since more people are doing a particular business and earning significant profits out of it they should enter the arena. Profit and size seems to be of less importance and satisfaction of doing it is of more importance to them.” He adds, “This is good in a way because this helps them to learn the basics well before they take bigger risks and invest high.”

Bank funding: Schemes and advantages
Several nationalized banks in India have special schemes for promoting entrepreneurship, especially enterprises owned by women. For a woman to benefit under such a scheme, she should have a minimum of 50% ownership in the company. According to Prof. Prabhu, “When a woman opts for the bank funding route, the assessment is made in the same way as other loans, but the terms and conditions are much favorable. Most of the nationalized banks in India have such schemes and also something called as the single-window coordination facility wherein one department will handle all the linkages required for getting the loan.”

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“The bank liked my concept and was quick to offer a me a loan of Rs 3 lakh. The entire loan procedure took just about a little more than a week’s time and around five to six visits.”

-- Vinnie Chaddha a beneficiary of
the Dena Shakti scheme

The schemes mostly give concession on interest rate of approximately 0.25 to 1%, depending on the loan amount. The procedure for applying is similar to other loans, the benefit of such schemes being that a preference is given to women. For example, under the Priyadarshini scheme of the Bank of India (BoI), the concession on rate of interest varies from 0.25% to 0.50% on retail banking that includes several loans like personal loans. According to VK Bansal, Chief Manager, Zonal Office, BoI, “Applying under these schemes is similar to applying for other schemes. You have to submit an application along with the details of your business. Then it will be processed for information such as what kind of business you have applied for, whether you have the experience or not, what is your own contribution in this project etc. If we find it viable then we go ahead with the loan.” The concession in the interest rate is also extended to other consumer loans. During the last financial year, the Chandigarh branch of Bank of India, disbursed approximately Rs 81 lakh to women entrepreneurs in 37 accounts.

Similarly, Dena Bank under the Dena Shakti scheme promotes women entrepreneurship by funding a number of activities. Earlier, the scheme covered only the manufacturing sector, but now has been extended to agriculture and allied activities, small enterprises, micro and small (manufacturing and service) enterprises, retail trade, micro-credit, education and housing. Dena Bank gives a concession of 0.25% on interest rate. As per the bank’s website, the loan ceiling is described as follows, “The maximum ceiling limits that can be considered for financing to women beneficiaries under this scheme will be as per the directives of RBI stipulated for various sectors under priority sector such as loans up to Rs 20 lakh under retail trade, Rs 20 lakh under education and housing and Rs 50,000 under micro credit as well as the bank’s specific schemes circulated to branches/offices from time to time.” Considering the fact that a bank has to disburse 5% of the previous year’s adjusted net bank credit (ANBC) to women under all schemes, Dena Bank has a target of approximately Rs 1,185 crore, according to a source.