The Importance of Formalization for Women-Owned MSMEs

Formalization is a transformative step for women-owned MSMEs, bridging the gap between informal operations and mainstream opportunities. For women entrepreneurs, formalizing their businesses not only provides access to financial support, such as loans and grants, but also provides access to growth opportunities, credibility, and market reach. In a sector often hindered by gender bias and limited resources, formalization enables women to tap into government schemes, establish trust with stakeholders, and drive sustainable economic contributions.

Introduction to MSMEs and Women Entrepreneurship

Micro, Small, and Medium Enterprises (MSMEs) play a crucial role in driving economic growth and providing employment opportunities, particularly in developing countries. These enterprises contribute significantly to innovation, income generation, and poverty alleviation.

Women entrepreneurship, specifically, refers to women engaging in business activities, often in sectors such as retail, manufacturing, and services. While women entrepreneurs face unique challenges, including access to finance, societal biases, and limited resources, they also bring diverse perspectives and solutions to the market.

Promoting women entrepreneurship within the MSME sector can lead to greater gender equality, economic independence, and social empowerment, benefiting both businesses and communities at large.

The Concept of Business Formalization for Women-Owned MSMEs

Business formalization refers to the process of transforming an informal business into a legally recognized and structured entity. For women-owned MSMEs, formalization involves several key steps:

1. Registration: For MSMEs in India, Udyam Registration is particularly important, as it formalizes the business and provides access to a range of benefits, including government schemes and subsidies tailored for MSMEs.
2. Legal Recognition: Formalization grants legal recognition to the business, enabling it to operate within the bounds of the law. This recognition ensures the business can enter contracts, own property, and protect intellectual property rights.
3. Compliance with Tax and Business Laws: To be fully formalized, businesses must comply with local tax regulations, including the proper registration for Goods and Services Tax (GST) and adherence to labor laws, environmental standards, and other relevant business regulations. Compliance with these laws helps establish credibility, avoid legal issues, and access benefits such as tax exemptions or subsidies.

For women-owned MSMEs, formalization is a powerful step toward growth, improving access to financing, enhancing credibility, and fostering long-term sustainability.

Why Formalization is Crucial for Women-Owned MSMEs

Formalization plays a pivotal role in the success and sustainability of women-owned MSMEs. By transitioning from the informal to the formal sector, women entrepreneurs can unlock a range of benefits that foster growth, stability, and empowerment. Below are key reasons why formalization is crucial for women-owned businesses:

1. Access to Finance: One of the most significant advantages of formalization is the ability to access formal financial services, such as business loans, and grants. Financial institutions and investors are more willing to offer funding to businesses that are legally registered and compliant with tax and business laws. For women entrepreneurs, this opens doors to the necessary capital for business expansion, equipment purchase, and other growth-related expenses.
2. Legal Protection: Formalizing a business provides legal protection, ensuring that women entrepreneurs can safeguard their intellectual property, enforce contracts, and resolve disputes through legal channels. This protection helps in building trust with clients, suppliers, and employees, ultimately fostering a sense of security and stability.
3. Market Access and Growth: Formalization enhances a business’s credibility, making it more attractive to potential customers, suppliers, and partners. Registered businesses are more likely to be considered for government contracts, tenders, and collaborations with larger organizations, thus facilitating market access. Furthermore, formalization provides the structure needed for scaling operations and entering new markets, both locally and internationally.
4. Tax Benefits and Compliance: Being formalized allows women-owned MSMEs to benefit from tax exemptions, subsidies, and government incentives. Compliance with tax and business laws not only helps avoid penalties and fines but also builds a good reputation, which can be crucial for long-term business success. Additionally, formal businesses can take advantage of tax breaks and deductions, meant to support small enterprises.
5. Better Business Practices: Formalization encourages the adoption of professional business practices, such as maintaining proper financial records, adhering to safety standards, and implementing good management strategies. These practices improve operational efficiency, reduce risks, and ensure long-term sustainability. As a result, formalized businesses are better equipped to handle challenges and seize growth opportunities.
6. Networking and Support: Formal businesses gain access to a broader network of industry peers, business organizations, and support systems, including mentorship and training programs. These networks can provide valuable resources, partnerships, and guidance that help women entrepreneurs navigate the challenges of running a business. Formalization also makes it easier to connect with government programs and NGOs focused on supporting women in business.
7. Social and Economic Empowerment: Formalization strengthens women’s economic autonomy and social standing by providing official recognition as business owners. Their success often inspires other women to pursue entrepreneurship, challenging gender stereotypes and creating formal employment opportunities that benefit the broader community. This shift from informal to formal business ownership plays a crucial role in demonstrating women’s economic leadership capabilities and advancing gender equality in the business world.

Kinara Capital’s MSME Insights Data Analysis reveals that 1/3rd of all new jobs created by women-owned MSMEs went to women employees.

Challenges to Business Formalization for Women Entrepreneurs

Business formalization, though crucial for growth, comes with several challenges, especially for women-owned MSMEs. Below are the key barriers to formalization and strategies to overcome them:

1. Lack of Awareness: Many women entrepreneurs, especially in rural areas, are unaware of the benefits and necessity of formalizing their businesses. They may not understand the legal and financial advantages, such as access to government schemes, financial support, or eligibility for contracts and tenders.
2. Cultural and Social Barriers: In many regions, traditional gender roles and social expectations can discourage women from pursuing formalization. There may also be a lack of family or community support for women entrepreneurs seeking to formalize their businesses.

Government Initiatives and Support for Women-Owned MSMEs

Governments recognize the importance of supporting women entrepreneurs and have implemented various policies and initiatives to encourage the formalization of women-owned MSMEs. These initiatives aim to address barriers such as limited access to finance, social biases, and lack of technical knowledge, empowering women to start, formalize, and scale their businesses. Below is an overview of key government policies and support systems designed to assist women-owned MSMEs:

1. Women Entrepreneurship Platform (WEP): The WEP, launched by the Government of India, is a digital platform aimed at providing women entrepreneurs with the necessary tools and resources to start and formalize their businesses. It offers access to market, mentorship, training, workshops and networking, encouraging women to formalize their businesses.
2. MUDRA Yojana: This scheme provides financial assistance to micro and small businesses, including women-owned MSMEs, for setting up new enterprises or expanding existing ones. Under MUDRA, women entrepreneurs can avail of collateral-free loans at low interest rates, which can help in formalizing their businesses and driving growth.
3. Stand-Up India Scheme: The Stand-Up India Scheme promotes entrepreneurship among women, Scheduled Castes (SCs), and Scheduled Tribes (STs) by providing loans for setting up greenfield enterprises in the manufacturing, services, and trading sectors. This scheme encourages women to formalize their businesses and provides access to much-needed capital to get started.
4. National Small Industries Corporation (NSIC): The NSIC offers various services for MSMEs, including women-owned businesses. This includes assistance with financial support, technological guidance, and marketing. The NSIC’s programs enable women entrepreneurs to formalize their businesses by connecting them with resources and government schemes.
5. Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE): The CGMSE provides 10% concession in annual Guarantee fees; 90% Guarantee coverage is given to women-owned MSEs, as against the 75% for other entrepreneurs.
6. Skill Development and Capacity-Building Programs: Several government initiatives, such as the National Skill Development Corporation (NSDC), offer training programs aimed at empowering women entrepreneurs with the skills needed to formalize and run successful businesses. These programs focus on improving business management, digital literacy, and financial literacy, which are crucial for formalization.
7. Yashasvini Scheme: The Ministry of MSME launched the ‘Yashasvini Campaign’ in 2024 to support the growth and formalization of women-led MSMEs across India. This initiative focuses on enhancing awareness about key schemes that provide formalization assistance, access to collateral-free credit, capacity-building opportunities, and mentorship. By addressing these critical areas, the campaign aims to enable women entrepreneurs to strengthen their businesses and contribute to the MSME sector’s overall development.

How HerVikas Program from Kinara Capital helps Women Entrepreneurs in 2025

Business loans for women from Kinara Capital have proven to be a game-changer for many women entrepreneurs, providing them with the financial support they need to grow and scale their businesses. 

Here’s how HerVikas loans have been beneficial for women entrepreneurs:

1. 1% Interest Rate Discount for eligible women-owned businesses. 
2. 60-day Repayment Holiday to ease financial stress. 
3. 50% Reduction in Processing Fees to make loans more affordable. 
4. Lowered Business Vintage Requirement: 1-month registration for manufacturing and trading MSMEs. 

HerVikas Business Loans cater to Diverse Business Needs, Including:

1. Purchasing Machinery
   Acquire or upgrade equipment to boost productivity and meet growing demand.
2. Managing Daily Operations
   Access necessary capital for salaries, inventory, and other essential expenses.
3. Expanding Product Lines or Services
   Diversify offerings to reach new markets and grow your customer base.
4. Upgrading Technology or Infrastructure
   Invest in modern tools, software, or infrastructure to enhance efficiency.
5. Renovating Business Premises
   Improve or refurbish your workspace to attract customers and inspire employees.

Conclusion

The formalization of women-owned MSMEs is a crucial step toward unlocking their full potential and ensuring long-term growth and sustainability. While challenges such as lack of awareness, complex procedures, and financial constraints can hinder the process, these barriers can be overcome with the right strategies. By providing education, simplifying formalization procedures, offering financial support, and fostering a supportive environment, we can empower women entrepreneurs to formalize their businesses and thrive. With continued efforts from the government, financial institutions, and community organizations, women-owned MSMEs can make a significant impact on the economy, create jobs, and contribute to social and economic empowerment.

At Kinara Capital, an RBI-registered Non-Banking Financial Company (NBFC), we understand the unique challenges women entrepreneurs face in formalizing and growing their businesses. We offer collateral-free business loans to help MSMEs overcome financial barriers, combined with a personalized approach to financial services. Through our HerVikas Program, Kinara Capital supports women entrepreneurs by providing specialized financial solutions and mentoring, enabling them to scale their businesses and seize new opportunities for success.

FAQs

1. What is the HerVikas Program, and when was it launched? 

HerVikas, a pioneering program by Kinara Capital, is designed to support and accelerate the growth of women entrepreneurs in India’s MSME sector. The HerVikas Program was launched in 2019 to empower millions of women in India to embrace entrepreneurship with confidence and strive for success.

2. What is the eligibility criteria for loan for women?

If you are a woman entrepreneur who owns or co-owns an MSME, you can apply for a HerVikas business loan for women.

3. How does formalization help women entrepreneurs access finance?

Formalization helps women entrepreneurs access finance by making their businesses eligible for loans, grants, and government schemes. It increases credibility, attracts investors, and allows access to formal financial institutions offering better loan terms and conditions.

4. Does formalization help in accessing funding?

Yes, formalization helps in accessing funding by enhancing a business’s credibility, making it eligible for loans, grants, and government schemes. It also attracts investors and allows businesses to access financial institutions offering favorable terms.

5. What tax benefits do women entrepreneurs gain from formalizing their MSMEs?

Formalizing MSMEs allows women entrepreneurs to avail tax benefits such as tax exemptions, rebates, and easier access to tax credits. It also ensures compliance with tax laws, which can lead to better financial management.

6. How does formalization impact growth and scalability for women-owned MSMEs?

Formalization impacts growth and scalability by improving access to funding, markets, and government support. It enhances credibility, attracts customers, and enables women-owned MSMEs to expand operations, adopt new technologies, and improve overall business efficiency.