Microfinance for Women-Owned Small Business in India: Challenges and Opportunities

Abstract

Promoting a business among women has been a challenge in developing countries like India. The formal financial sector generally assumes that providing small loans and deposit services to the zero collateral-based unbanked people would be unprofitable because of the asymmetric information about the creditworthiness of the borrowers and also due to the high transaction costs associated with the delivering of small-scale financial services. Recently, in India, women are increasingly participating in opening small businesses to earn some money which in turn increases both the production and employment (macro impact) on the one hand and also their self-worth and voice representation (empowerment) on the other hand. Unfortunately, in India, the supply of finance for such small businesses is very low, and since these businesses mostly belong to the informal unorganized sector, therefore, they hardly able to manage adequate suitable finance from formal sources for their small setups. Here, microfinance through self-help groups (SHGs) may put some solution in respect of the supply of finance and protects these people from the usurious moneylenders. At present in India, the SHG-based microfinance program is one of the largest flagship pro-poor program in the world to offer different alternative financial services among the unbanked poor, especially women poor. This chapter attempted to analyze the major problems of women-owned small businesses in India and the role of group-based microfinance to accelerate such businesses providing small finance. The study reveals that most women in India choose to set up a business as a profession just due to the necessity of the family and therefore not well prepare to face different social and financial problems related to it. Despite the initiatives taken by the government and other private agencies to promote microfinance for overcoming such problems, the supply of such initiatives is still lagged far behind the total demand.