Till a few years back Sudha Devi’s family was dependent on her husband’s apprenticeship job at a sweet shop in Patna, Bihar. Starting from small incremental loans ranging from Rs. 2500 to Rs 20,000, Sudha and her husband Sakhinder built up a successful local business. Today, the annual revenue of that business is more than Rs. 40 lakh.
Homemaker from Pardi, Maharashtra, Archana Amardeep Bhoir started her own enterprise in 2017 by taking loan of Rs. 84,000 for vegetable cultivation, cutlery shop and Xerox center.
These are no doubt encouraging stories of women entrepreneurs in India. However, while women’s collectives can borrow from banks and microfinance institutions, individual women entrepreneurs in the country face many challenges when seeking to finance their own enterprises. Loans of Rs. 50,000 – Rs. 5 lakhs are often viewed as being too small and too risky and are charged an interest of 20 to 24 percent.
Scaling new heights
A new social impact bond for women, called the women's livelihood bond, launched with support from World Bank and UN Women, is the first-ever impact bond in India that will connect impact investors with women entrepreneurs at the bottom of the pyramid, like Sudha Devi and Archana.
Attending the launch of the bond on February 19 in Mumbai, Sudha Devi and Archana were hopeful of taking their businesses to even greater heights.
Talking about her dreams for the enterprise that employed 30-40 local youth and women, Sudha Devi said, "Sometimes our cash flow dries up and we are forced to stop. But we hope that if we can secure a more consistent flow of investment, we would be able to scale new heights. That is my dream and my goal."
Women in the states of Bihar, Jharkhand, Madhya Pradesh, Maharashtra, Rajasthan, Uttar Pradesh and the North Eastern states, among others, are expected to receive most of the credit.
Helping individual women entrepreneurs
The bond, supported by some ten leading wealth managers and corporates, will help rural women in some of India’s poorest states to set up or scale-up their own enterprises. Loans are expected to be around Rs. 1 lakh to Rs. 1.5 lakh at interest rates of around 13 percent to 14 percent per annum. This is likely to create millions of jobs in the process. An impact investment of Rs. 1 crore could potentially support 100 women entrepreneurs, which could further provide jobs to an additional 300 to 400 poor across sectors like agriculture, food processing, services, manufacturing, etc.
“Investing in women and children is about investing in the growth of the nation. In the last several years, this has emerged as the largest investment in human capital,” said World Bank Country Director Junaid Ahmad during the launch of the bond on February 19 in Mumbai.
Private sector participation
Some of the biggest wealth management agencies like Centrum, ASK, Ambit, Aditya Birla capital among others have reached out to high net worth individuals and impact investors to raise funding. Companies like TATA Communications, Chemicals, Trent and Voltas have also expressed interest in investing.
It is expected that nearly Rs. 300 crores will be raised through multiple tranches in the coming months will enable women entrepreneurs from microfinance institutions and self-help groups to shift from microfinance and livelihood programs to market-financed programs. Critically, it will support them moving from group lending to individual entrepreneurship.
The women’s livelihood bond will be backed by a corpus fund to be mobilized through corporate social responsibility contributions and through grant support from the Department for International Development (DFID) that will act as a first loss default guarantee, as well as help monitor and track the program outputs.
SIDBI will deploy an ecosystem of support in the form of entrepreneurship trainings and partial credit guarantees for women entrepreneur participants.
The World Bank and UN Women’s Business Sector Advisory Council will support Small Industries Development Bank of India (SIDBI) in accessing impact investors and provide support to achieve and track impact.
“One of the biggest challenges we are facing in India is the declining labor force participation of women,” said Mr Ahmad. “We feel that by bringing private market finance into the game and ensuring that it goes to individual women entrepreneurship, we may be able to reverse this decline.”