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2020 lockdown shut 11% women MSMEs, only 1% got back on feet with govt help, finds study

Krea University researchers surveyed 2,083 non-agricultural enterprises in Bihar, Chhattisgarh, Madhya Pradesh, and Odisha to examine the impact of Covid-19 on women-led MSMEs.

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The nation and statewide lockdowns imposed in India left an approximate 17 million to 19.3 million women unemployed in the immediate aftermath of the Covid-19 pandemic, between March and April 2020. Personal and non-professional services, comprising operators of small-scale enterprises such as tailors, dressmakers, petty shopkeepers, barbers and beauty-parlour owners, as well as domestic helps and part-time workers witnessed relatively high volatility compared to other sectors. The effect of the lockdown was clearly evident as male employment fell by 30% of its pre-lockdown level while female employment fell by 43%.

Survey of women-based MSME entrepreneurs

In an effort to examine the impact of Covid-19 on women-led micro, small and medium enterprises (MSMEs), we surveyed 2,083 non-agricultural enterprises across four states: Bihar, Chhattisgarh, Madhya Pradesh, and Odisha. Specifically, the survey reached rural women entrepreneurs in the intervening period when the first of the unlock measures was announced in June 2020 followed by Phase 2 in July 2020. Small women-led enterprises, for the purpose of this survey, were defined as enterprises that are run from an establishment or from individual households, fall in the micro category of MSMEs and have women registered as owners.

Table 1: Number of enterprises surveyed according to nature of operations

Our findings highlight some of the financial and social distresses faced by these entrepreneurs at an individual, household and enterprise level.

Eighty-percent revenue drop in three out of four states

Revenues of most businesses reduced significantly during the lockdown months, with median revenue for April being reported as zero across businesses. Three out of four states reported over 80% drop in revenues. With supply chains disrupted, production units saw the largest decline in revenue, with most reporting zero revenue for April, May, and June. Trading enterprises seemed to fare much better than others—they did not report zero incomes for any of the months. This can perhaps be attributed to most trading enterprises being kirana stores in our sample, which by virtue of their nature fall under the essential commodities category and were thus exempted from some of the lockdown guidelines.

Also read: Job losses, business closure — Covid hit female entrepreneurs. Here’s how to support them

Women-led enterprises and closures

One of the unintended and adverse consequences of the lockdown was business closures. In our sample of 2,083 women-led enterprises, for most businesses, the operations were only partially interrupted (44.6%) or temporarily closed (36.0%), while 10.9% of women-led businesses, most of them unregistered, had permanently closed down during the initial lockdown itself (April-May 2020). As the lockdown restrictions slowly began to ease in June-July, the permanent closures marginally increased to 11.5% of the sample.

Nearly 46% businesses that were permanently closed had no intention of starting another business, 27.8% of businesses were unsure, and 26.4% were affirmative in their intentions of starting a new business (Figure 1). It was alarming that almost one in two permanently closed enterprises reported no intention of starting a new venture in the foreseeable future.

Figure 1: Future outlook of permanently closed businesses

Source: Authors’ own calculations

This is of relevance because it depicts the potential impact market shocks (in this case induced by a pandemic) can have on further marginalising women’s representation in the entrepreneurial ecosystem. Promisingly, however, of those permanently closed enterprises that wished to begin a business again (nearly one in two), most anticipated starting a new business within a week (23%), signalling market optimism among some (Figure 2).

Figure 2: Timelines for starting new ventures given by permanently closed enterprises

Source: Authors’ own calculations

De-prioritisation of business due to increased care burden 

The impact of this pandemic was disproportionately higher for women than their male counterparts, both within the household, and outside of it in an enterprise setting. Wenham et al (2020) state that worldwide closures to control the spread of the coronavirus might have had a compounding impact on women’s physical and psychological health, as they bore additional caretaking responsibilities in addition to doing other household chores, with little to no support from male members of the family.

Our survey finds that while women were spending less time on their businesses, they had perhaps internalised social norms regarding unpaid work and caregiving responsibilities (Figure 3). Despite women reporting a decrease in time spent on their own entrepreneurial efforts, most women felt that the time they spent on taking care of family members, running a household, or time spent on assisting their spouse’s business had stayed the same.

Figure 3: Time spent on business activities

Source: Authors’ own calculations

Others felt that the time spent on household work (43%) and unpaid work (38%) had only increased during the pandemic (Figure 4). Women entrepreneurs consistently reported moderate to extremely high levels of stress regarding household responsibilities, staying locked in and household expenses (Figure 5).

Figure 4: Time spent on non-business activities: Household and unpaid work

Source: Authors’ own calculations

Figure 5: Stress related to non-business responsibilities

Source: Authors’ own calculations

Another consequence of lesser time spent by women on their own businesses was the de-prioritisation of their own businesses within the household: for 48.4%, their business was the primary source of income for the household, but post Covid-19, the numbers went down to 36.2%.

Also read: Covid pushed women back decades. India can’t be ‘atmanirbhar’ without bailing them out

Low risk appetite and business recovery 

Most of our respondents (65.6%) had no loan obligations at the time of the survey, signalling a low-risk appetite. This is corroborated by the fact that 80% of surveyed women entrepreneurs did not take enterprise related loans even during the lockdown, which was marred by limited cash reserves and low market demand. Even among loan takers, formal channels like banks, micro finance institutions, NBFCs, self-help groups, etc. (42.5%) remained the preferred source, followed by informal channels like money lenders and pawn shops, before seeking support from friends and family.

Over three-fourths of the respondents dipped into personal savings (46.3%) and business cash reserves (41.9%) to financially cope. This can be possibly explained by two reasons: either most women-led businesses seeking financial assistance were unable to access emergency credit/loan facilities or unwilling to approach channels of credit that were tied to debt. When asked what form of support they would find most helpful, one out of every two women or 47.6% responded that availability of new funds would be the most helpful support to achieve their pre-Covid-19 level of operations.

A clear use of own savings, not using loans, and higher awareness (and use) of schemes related to cash reserves reveal that there is a clear preference for non-debt forms of monetary assistance.

With poor social networks, and low self-efficacy affecting risk preferences, this finding brings to light the importance of government aid through direct cash transfers and short-term interest free loans among other low-risk financial products. It also indicates a ready market for innovative micro-insurance and flexible loan products for helping small women-led businesses tide over difficult times and hit the reset button.

Figure 6: Summary of the study findings

Source: Authors’ own calculations

Also read: Women led start-ups always struggled for money. Covid made it worse

Resurvey of women with permanently closed businesses 

We revisited enterprises that reported permanent closure (239) during our survey in June–July 2020, and re-surveyed 205 enterprises in November 2020 to understand how they were faring after the ease of Covid-19 restrictions.

Many of our respondents had resumed business operations. Around 73% women who had thought to have permanently closed their businesses reported commencing business activity with a majority of them (97%) resuming the same business as before. This proportion was higher among women running individual-led enterprises and trading enterprises.

The key factors that were pivotal in restarting a business were an increase in demand due to festivities (60%), a prolonged period of closure with limited means for household income (44%), easing of lockdown restrictions (41%) and an increase in general demand (39%). While this is positive news, most of these decisions were a result of necessity and do not necessarily signal business outlook or keenness to grow one’s business. It is also important to note that only 1% of the respondents reported that they restarted their business because of the support received from government schemes.

When asked about the source of motivation to reopen or start their business, 19% cited that they took the decision themselves, 20% cited they had to open to either handle the household expenses or to improve their family’s financial situation. Fifteen percent were primarily motivated by a rise in demand and/or customers getting back, including those during the festive/wedding season and 1% did so because of motivation received by their self-help group (SHG) members.

In terms of external help, 17% responded they received some help from their SHG, 1% received help from banks, 2% received help from friends or relatives while a significant 68% reported they received no help whatsoever.

Around 55% of the businesses reopened within two months of ease of lockdown restrictions (1 July onwards). Around 58% of women reported that although there has been an increase in their income since the last time we spoke to them, business activity has not reached previous year levels. Eighty-three percent reported that business level was lower compared to last season.

Also read: India’s women entrepreneurs look to survive the pandemic by remodeling their business

Conclusion: Interventions and support needed

Special measures were announced in the Covid-19 stimulus package for the MSME sector in May 2020. Many of these measures have been taken forward into the budget of 2021 and expanded to better support the MSME sector. The allocation towards the MSME sector itself has been doubled from last year (to Rs 15,700 crore) and a lion’s share — 64% — is allocated to one scheme that the government initiated during the Covid-19 pandemic—the GECL (Guarantee Emergency Credit Line). This scheme aimed at reassuring risk-averse banks (or member-lending institutions) to restart lending to stressed businesses with a 100% credit guarantee.

However, there have been concerns of neglect of micro enterprises, given that many of these measures can only be availed by businesses of a certain size, scale, and agency. More specifically, small businesses in the unorganised sector, perhaps the most in need of assistance at a time like this, may not have the resources or skills to avail the benefits of these schemes.

As per the 73rd round of the National Sample Survey (2015–16), overall women make up 20% of the total MSME landscape and 99% of the MSME enterprises are in the micro category. Less than 1% make up the small (0.52%) and medium enterprises (0.01%). Within the MSME landscape, women make up 20% of the micro enterprises, and only 5% and less than 3% of small and medium enterprises, respectively. The extent of unregistered businesses is also generally agreed to be above the 90% mark, as per various sources. This is also corroborated by our study, where over 81% of women businesses were unregistered.

This brings us back to the agency problem of women-led businesses. Many women entrepreneurs may find themselves unable to actually avail the benefits of these schemes and/or may not find these schemes designed to aid them. Our study found that while awareness of any Covid-19-related government (state or central) scheme stood at 96.3%, the actual application/availing of these schemes was only 35.9%. In fact, the schemes that most women were aware of and availed of were the ones related to direct cash transfers. Many women (53.7%) did take advantage of support from SHGs with loans being the most sought out form (42.6%). The second most sought out support from SHGs was procuring information on schemes–5.43%. This shows that women are perhaps tapping into the micro ecosystem to support their businesses. There is merit in studying and designing financial instruments that specifically cater to the needs and risk-appetite of women entrepreneurs, most of whom fall in the micro-unregistered sector.

The intersectionality of gender and entrepreneurship has received much attention in recent years, but there has been less progress when it comes to offering solutions with a gender lens. As markets return to normalcy, and the economy inches towards growth and recovery, it is important to acknowledge this gender dividend and the social and economic potential they hold the key to.

Nilanjana Bargotra and Kartikeya Bhatotia are Research Associates, MP Karthick is a Data Scientist, and Mridulya Narasimhan is Project Head–STREE, MSME & Entrepreneurship at LEAD, Krea University. Views are personal. 

This is an edited excerpt from the authors’ report first published in the Economic & Political Weekly (EPW) journal. Read the full article here

(Edited by Prashant Dixit)

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