Fintech industry which has witnessed a boon for many business owners and especially for women who own small businesses
By Poshak Agrawal, CEO & Co-founder, Florence Capital
The Indian Entrepreneur
The 2019-2020 Economic Survey of India has encouraging numbers about the growth of entrepreneurship in India – the country is now ranked third in the world. New firm creation has gone up dramatically – from 70,000 new firms created in 2014 by 80% to 1.2 lakh new firms in 2018.
Of these, 50,000 were startups according to data from the Department For Promotion of Industry and Internal trade and it is these startups which get the lion’s share of attention from the media to investors.
However, as the Economic Survey points out, on a per-capita basis India has the lowest rates of formal entrepreneurship in the world and it is in this segment that the majority of India’s 8.05 million women entrepreneurs operate.
The Challenge: Informal Entrepreneurs
Entrepreneurs in the informal sector face several challenges – chiefly lower levels of capitalization and reliance on self-financing. This is backed by World Bank data on the number of Indians who have access to credit scores (just 63% in 2019) and the fact that only two-thirds of this segment is served by traditional banks.
These numbers are even more dismal for women – a 2019 study by the International Finance Corporation found that India ranks third highest in the entrepreneurship gender gap and that an estimated 70% finance demand from women entrepreneurs was going unmet. This is because women face challenges unique to their gender – lack of access to collateral, need for small ticket sizes, limited mobility due to cultural norms and family obligations, lower literacy and business knowledge.
Fintech is the future that’s poised to provide solutions to the challenges that not just women, but informal entrepreneurs in India face.
Fintech Plugs The Gaps
Briefly, fintech refers to any financial service provided digitally. Through technology- fintech helps individuals, businesses and consumers manage various financial processes. From our original understanding of merely automated back-end processes, fintech today spans various sectors – banking, fundraising, account management, investment, insurance, etc.
India has emerged as one of the fastest growing fintech markets in the world – building on the government’s Digital India push and the principles of the India Stack project – paperless, presenceless and cashless service delivery.
Today, Fintech is all set to revolutionize the financing of medium, small and very small enterprises in India. Entrepreneurs in this segment struggle to access funds from traditional institutions due to their lack of collateral, need for small ticket sizes and limited access to brick and mortar outlets. Most traditional institutions shy away from this form of lending due to the low profitability and percieved high risk of these borrowers.
Lending fintechs can assess risks accurately with the help of technology. With automation of processes they can cut costs and make small ticket loans viable. Finally, with fully digital delivery of services they can reach India’s underserved entrepreneurs at scale.
While wider access to capital is the most significant and most talked about benefit for entrepreneurs, it is not the only one. There are multiple fintech offerings in the market that help entrepreneurs not just start, but build and scale their businesses.
Digital account management services help entrepreneurs manage businesses more effectively and independently. It reduces their dependence on accountants, clerks, and provides accurate records of their business – leading to better business analysis.
Digital marketplaces and payment services help them access wider markets and expand their businesses. For women, this has the added benefit of helping them overcome their limited mobility and provides physical safety by allowing them to run businesses from the security of their homes. Furthermore digital payments allow for ‘clean/white transactions’ another preference that many women entrepreneurs have.
Investment and insurance services help them turn profits into passive income, build their access to collateral and manage risk.
Finally, it would be worthwhile to talk about the meeting of Fintech and Edtech services – where entrepreneurs can upskill themselves on business strategy and investment without having to invest time and money into traditional higher education such as MBAs, Diplomas etc.
It’s also heartening to note the growth of several all women digital communities which focus on providing support, networks and safe spaces for women entrepreneurs.
Fintech Future: Accessible Entrepreneurship For All
The invention of the plough sparked agriculture, the spinning loom led to the industrial revolution – at every stage of Human History, social and economic progress has come on the back of technological innovation. With the right vision, Fintech will be the technology that makes entrepreneurship accessible to all.