Background
Sustainable finance has emerged as a critical driver for fostering gender equality within India’s MSMEs, which play a vital role in the nation’s economy. With approximately 15 million women-owned MSMEs in India, these enterprises contribute significantly to job creation and economic growth. However, women entrepreneurs face substantial challenges, particularly in accessing financial resources. Reports indicate that nearly 90% of women entrepreneurs have not availed financing from formal financial institutions, highlighting a significant credit gap estimated at ₹6.37 trillion (approximately $85 billion) for women-owned MSMEs alone. This lack of access to capital is compounded by social barriers and inadequate business skills, with only 24% of the total MSME workforce being female, according to the National Sample Survey Office (NSSO). Moreover, the COVID-19 pandemic has disproportionately impacted women entrepreneurs, exacerbating existing inequalities. Addressing these challenges through sustainable finance initiatives can unlock the potential of women-led businesses, ultimately contributing to economic resilience and gender equity in India’s rapidly evolving market landscape. By integrating environmental, social, and governance (ESG) factors into financial decision-making, financial institutions can not only drive positive social change but also achieve robust financial returns by investing in women-led enterprises. [1] [2] [3]
Sustainable finance, which balances environmental, social, and financial goals, is emerging as a catalyst for empowering women in India’s MSME sector. Innovative financial products like microloans and women-focused investment funds facilitate the growth of women-led businesses, fostering job creation and grassroots economic development. Initiatives like the Women Livelihood Bond by SBI enhance institutional credit access for women entrepreneurs, promoting their economic participation. Integrating gender considerations and ESG factors into financial policies drives inclusivity, with women-owned MSMEs demonstrating higher profitability and stability. This approach addresses gender disparities, supports sustainable development, and builds a more equitable and resilient economy. [4] [5]
The Role of Women in India’s MSMEs: Challenges and Opportunities
Women in India’s urban markets are crucial as caregivers, entrepreneurs, and consumers. Their contributions are vital to the economy, yet they face significant challenges that hinder their full participation in MSMEs. This highlights the need for sustainable finance to empower women and promote gender equality in urban markets.
Challenges
Financial Constraints
Women entrepreneurs face significant financial challenges despite constituting 20.5% of MSMEs registered on the Udyam Portal since July 2020. According to the International Finance Corporation (IFC), women-owned businesses in India face a financing gap of ₹1.96 trillion ($26 billion), limiting their access to credit and savings and hindering business growth. [6]
Social Barriers
Traditional gender roles limit women’s economic participation, with India’s female workforce participation rate at just 24% in 2022, among the lowest globally. Women spend 8.4 times more hours on unpaid work than men, restricting their time for paid employment or entrepreneurship. [7]
Lack of Business Skills
Many women lack business skills and training to grow their enterprises. While women lead 20% of India’s 58.5 million MSMEs, most are small-scale and informal. A study found that over 45% of urban small business owners struggle with limited networking opportunities, hindering partnerships and customer outreach. [8]
Opportunities for Women in MSMEs
Despite these challenges, there are significant opportunities for women in India’s MSME sector:
Increasing Participation
Women’s participation in MSMEs is growing, with 39% of MSMEs registered with the MSME Ministry as of July 2024 being women-owned. Between 2020 and 2023, women entrepreneurs registered under government initiatives increased significantly, highlighting their rising entrepreneurial potential. [9]
Government Support Initiatives
The Indian government has introduced initiatives to support women entrepreneurs, including the amended Public Procurement Policy, which mandates that 3% of annual procurement by Central Public Sector Enterprises must be from women entrepreneurs. Additionally, the Credit Guarantee Scheme for Micro and Small Enterprises offers up to 85% guarantee coverage for women entrepreneurs, higher than for others. [10] [11]
Access to Technology and Market Linkages
Digital platforms have improved market access for women entrepreneurs. Initiatives like the Udyam Assist Platform (UAP) help onboard informal micro-enterprises, offering better access to financial resources and markets. Technology-driven solutions also boost productivity and expand reach. [12]
Skill Development Programs
Skill development programs, like those by SEWA Bharat, offer training and resources to women entrepreneurs, empowering them to manage businesses effectively. These programs enhance financial resilience and foster community among female entrepreneurs. [13]
Access to capital is a significant challenge for women entrepreneurs in India’s MSME sector. Traditional financing often favors male-dominated businesses, with restrictive lending criteria and collateral requirements. As of March 2023, only 7.09% of MSME credit from scheduled commercial banks went to women-owned enterprises. Sustainable finance offers tailored solutions like microloans, women-focused credit lines, and funds for women-led MSMEs. For instance, SIDBI’s Women Livelihood Bond, in collaboration with the World Bank and UN Women, aims to raise ₹300 crore, offering loans at interest rates of up to 13%, far lower than the 20-24% charged by microfinance institutions. These initiatives help women entrepreneurs overcome financial barriers, build resilience, and achieve financial independence, contributing to job creation, innovation, and community development. [14] [15]
Models of Sustainable Finance as a Driver for Gender Equality in India’s MSMEs
Sustainable finance offers various models to enhance gender equality within India’s MSMEs. These models address women entrepreneurs’ financial needs and integrate social and environmental considerations into their operations. Here are some key models:
Blended Finance
Blended finance combines public and private funding to mitigate risks associated with investments in women-led MSMEs. Blended finance can attract private investors who may otherwise be hesitant to invest in higher-risk ventures by leveraging concessional funds from government or philanthropic sources. This model is particularly effective for supporting projects focusing on sustainable practices, such as renewable energy initiatives or eco-friendly manufacturing processes. For instance, the MSME Green Investment and Financing for Transformation (MSME-GIFT) scheme provides interest subvention, and credit guarantees for green technology projects, encouraging women entrepreneurs to adopt sustainable practices while ensuring financial viability.
Impact Bonds
Impact bonds are innovative financial instruments linking funding to achieving specific social outcomes. In the context of women-led MSMEs, these bonds can be structured to fund initiatives that promote gender equality while generating measurable social impacts. For example, an impact bond could be designed to support training programs for women entrepreneurs in sustainable business practices, with returns tied to the success rates of these businesses in terms of job creation and revenue growth. This model incentivizes investors to support projects that yield positive social outcomes while providing financial returns.
Green Finance Initiatives
Green finance targets explicit investments in environmentally sustainable projects. Financial institutions are increasingly offering green loans and investment products tailored to women-led MSMEs focusing on sustainability. For example, the Asian Development Bank (ADB) has financed projects that provide housing loans to women from
economically weaker sections, encouraging female property ownership and promoting sustainable housing solutions. Such initiatives empower women financially and contribute to broader environmental goals.
Digital Financial Inclusion
Digital financial inclusion leverages technology to enhance women entrepreneurs’ access to financial services. By adopting a gender-intentional approach, financial institutions can develop digital platforms that cater specifically to the needs of women-led MSMEs. This includes mobile banking solutions, online lending platforms, and digital payment systems that reduce transaction costs and improve security. The Better Than Cash Alliance exemplifies this approach by transitioning businesses from cash to digital payments, thus enhancing access and transparency for women entrepreneurs.
Sector-Specific Financial Products
Creating sector-specific financial products addresses the unique challenges faced by women entrepreneurs in various industries. For instance, targeted financing solutions can be developed for women-led enterprises in agriculture to invest in sustainable farming techniques or for manufacturers looking to improve energy efficiency. Such tailored products ensure that women entrepreneurs have the necessary resources to innovate and adopt sustainable practices relevant to their sectors.
These models of sustainable finance not only provide critical support for women-led MSMEs and promote gender equality by addressing systemic barriers faced by female entrepreneurs in India. By integrating social impact with financial returns, these innovative financing solutions can empower women, foster economic growth, and contribute to a more inclusive and sustainable economy. [16] [17] [18] [19]
Implementing Sustainable Finance Models in the Indian Context of MSMEs
A multifaceted approach, focusing on gender equality, is essential to effectively implementing sustainable finance models in the Indian context of Micro, Small, and Medium Enterprises (MSMEs). This approach should integrate financial inclusion, capacity building, and supportive policies that empower women entrepreneurs while promoting sustainable practices.
Implementing sustainable finance models in India’s MSME sector, focusing on gender equality, requires a comprehensive strategy that enhances access to finance, builds capacity, creates supportive ecosystems, advocates for policy changes, and employs monitoring mechanisms. By addressing these areas, stakeholders can empower women entrepreneurs, promote sustainable development, and contribute to a more equitable economic landscape in India. [20] [21] [22]
Encouraging Innovations in Women-Led MSMEs
Sustainable finance empowers women entrepreneurs by fostering innovation and breaking societal barriers. Women-led MSMEs, constituting 20.5% of registered MSMEs in India as of 2024, are increasingly recognized for their potential to drive economic growth and sustainability. Programs like the Greening of Finance by Women (GroW) program and Women Entrepreneurship Platform (WEP) provide financial resources and mentorship, enabling women to launch ventures in green industries and develop eco-friendly products such as biodegradable packaging. Risk-sharing tools like blended finance and schemes like MUDRA Yojana, which has disbursed over 300 million loans to women since 2015, encourage innovation and expansion in traditionally male-dominated sectors. This financial support helps women entrepreneurs tackle social and environmental challenges while contributing significantly to job creation and economic development.
Promoting Women-Led Local Products on Various Platforms
A multifaceted approach, with a focus on gender equality, is essential to effectively implementing sustainable finance models in the Indian context of MSMEs. This approach should integrate financial inclusion, capacity building, and supportive policies that empower women entrepreneurs while promoting sustainable practices.
To empower women entrepreneurs and boost their market presence, a strategic approach is needed that combines digital marketing, sustainable finance, capacity building, public-private partnerships, and sustainable practices. This approach will contribute to a more equitable economic landscape in India. [23] [24]
Building Capacity for Access to Sustainable Finance in India’s MSME Sector
Enhancing women’s access to sustainable finance in the MSME sector requires a multifaceted approach centred on capacity building. Digital financial literacy programs can empower women to use online banking, digital payments, and financial tools effectively, enabling access to sustainable finance. Specialized training on green finance equips women with the knowledge to align their businesses with environmental goals. Support networks, like We-Fi, connect them with mentors and financial institutions, fostering better funding opportunities. Gender-responsive financial policies, including reduced transaction costs and improved security, can address systemic barriers. Leveraging technology through digital wallets, peer-to-peer lending, and mobile banking further enhances financial inclusion, providing women access to devices and connectivity. Government initiatives like the Women Entrepreneurship Program can be expanded to include modules on sustainable finance, offering targeted skill development. This comprehensive strategy not only empowers women entrepreneurs but also drives economic growth and gender equality in India. [25]
To empower women entrepreneurs and boost their market presence, a strategic approach is needed that combines digital marketing, sustainable finance, capacity building, public-private partnerships, and sustainable practices. This approach will contribute to a more equitable economic landscape in India. [26] [27]
Building Capacity for Access to Sustainable Finance in India’s MSME Sector
Enhancing women’s access to sustainable finance in the MSME sector requires a multifaceted approach centred on capacity building. Digital financial literacy programs can empower women to use online banking, digital payments, and financial tools effectively, enabling access to sustainable finance. Specialized training on green finance equips women with the knowledge to align their businesses with environmental goals. Support networks, like We-Fi, connect them with mentors and financial institutions, fostering better funding opportunities. Gender-responsive financial policies, including reduced transaction costs and improved security, can address systemic barriers. Leveraging technology through digital wallets, peer-to-peer lending, and mobile banking further enhances financial inclusion, providing women access to devices and connectivity. Government initiatives like the Women Entrepreneurship Program can be expanded to include modules on sustainable finance, offering targeted skill development. This comprehensive strategy not only empowers women entrepreneurs but also drives economic growth and gender equality in India. [28]
Udyam Sakhi Network: Empowering Women Entrepreneurs in India’s MSMEs
Launched by the Ministry of MSME on International Women’s Day in 2018, the Udyam Sakhi Network supports India’s 8 million women entrepreneurs. It offers tools like entrepreneurship training, incubation facilities, mentorship, and market research assistance. Through initiatives like the Prime Minister’s Employment Generation Programme (PMEGP), women entrepreneurs have established 1.38 lakh projects, making up 30% of total projects under the scheme. Additionally, women engaging with Udyam Sakhi are 30% more likely to secure funding, showcasing its impact in fostering financial independence and community contributions by empowering women in the MSME sector. [29] [30] [31]
CASE STUDY
Empowering Women Entrepreneurs: The Success Story of Balpreet Aulakh
Balpreet Aulakh, a textile entrepreneur from Punjab, exemplifies how sustainable finance can empower women in the MSME sector. With the support of Shriram Finance, a leading non-banking financial company (NBFC) backed by the International Finance Corporation (IFC), Balpreet received the necessary funds and business guidance to expand her textile business. This partnership provided her with a working capital loan and helped her develop a comprehensive business plan. As a result, her enterprise flourished, leading to increased production capacity and job creation. Balpreet’s story is part of a larger movement; IFC’s investment of $150 million in Shriram Finance aims to facilitate 9 million micro loans and nearly 200,000 SME loans, prioritizing support for women-led businesses. This initiative has empowered countless women entrepreneurs like Balpreet, enabling them to achieve financial independence and inspire others in their communities. Today, Balpreet proudly states, “I feel empowered and happy to inspire other women to become self-reliant too,” demonstrating the transformative impact of sustainable finance on women’s empowerment in India’s MSME landscape.
Paving the Way for Inclusive and Sustainable Growth
India stands at a pivotal moment in its journey toward inclusive economic development. The untapped potential of women entrepreneurs in the MSME sector is not just a missed opportunity—it is a call to action. As this article has explored, sustainable finance can be a transformative lever to bridge existing gender gaps, foster innovation, and build economic resilience at the grassroots. From blended finance and green loans to digital financial inclusion and sector-specific products, the evolving financial landscape holds immense promise for women-led enterprises.
But unlocking this potential requires more than access to capital. It demands a collective commitment of policymakers, financial institutions, civil society, and the private sector to create enabling ecosystems where women can thrive as entrepreneurs, innovators, and leaders. With proper support, India’s women-led MSMEs can be powerful agents of change, driving business growth, social equity, and environmental sustainability. As we look ahead, integrating gender-sensitive policies within sustainable finance frameworks is not just a step toward equality but a stride toward a more just, prosperous, and sustainable future for all.
Conclusion and Way Forward
Sustainable finance is critical to future-proof India’s MSME sector by aligning business growth with environmental, social, and governance (ESG) principles. While dynamic and central to India’s economic fabric, the industry faces multiple challenges in accessing green capital, ranging from limited awareness of ESG frameworks and sustainability-linked instruments to inadequate institutional capacity and weak enabling policies. Despite increasing policy momentum and emerging market innovations, sustainable finance remains largely nascent within MSMEs, with adoption confined to a few pioneering enterprises.
A multi-pronged and ecosystem-based approach is essential to unlock sustainable finance’s full potential. First, MSMEs need to deepen financial literacy and ESG awareness through targeted capacity-building initiatives, including toolkits, mentoring, and cluster-level programs. Second, regulatory frameworks and disclosure norms must be calibrated to MSME capacities, promoting ESG adoption without imposing disproportionate compliance burdens. Third, innovative financial mechanisms such as blended finance, ESG-linked credit lines, and green credit guarantee schemes should be scaled to de-risk investments and attract private capital into sustainable MSME ventures. Further, financial institutions must build ESG-aligned underwriting capabilities and introduce fit-for-purpose sustainable finance products tailored to the diverse segments of the MSME landscape. Public–private partnerships and collaboration with fintechs, incubators, and industry bodies can catalyze developing viable green, inclusive enterprise pipelines. In the long term, integrating sustainability metrics into MSME credit appraisal, incentives, and market access mechanisms can embed ESG into the core of India’s entrepreneurial ecosystem. With the right support structures and a cohesive policy-finance ecosystem, sustainable finance can enable Indian MSMEs to become engines of green innovation, social equity, and resilient economic growth, contributing meaningfully to national commitments on climate action, circular economy, and the Sustainable Development Goals.
