Remarks by George Deikun, Mission Director, USAID India, at Bizwomen's Conference, Bangalore

August 06, 2005

Good morning; Shri P. Chidambaram, Honorable Union Minister of Finance; Ms. Rajshree Pathy; Ms. Pallavi Jha; other accomplished entrepreneurs; and honored guests.

It is truly a pleasure to participate in today’s conference and particularly on a theme that is critically important for India’s economy, and for 48% of India’s population, its women. In sponsoring this conference, USAID and our many partners intend that you, women entrepreneurs, will be inspired by and learn from the success of others in developing winning strategies for business growth, positioning yourselves in a global market, and gaining access to capital. The presence of the Honorable Union Minister of Finance Chidambaram in itself indicates the importance that the Government of India places on job creation through business development, and the growing role of women in the economy.

I think you will agree that these are exciting times for our two countries. With the recent historic meeting between Prime Minister Manmohan Singh and President George Bush, relations between India and the United States have never been better. Building on common values and interests, the two leaders have agreed to work jointly in many areas including trade and investment. USAID’s sponsorship of this conference alongside Indian business and finance institutions is a practical demonstration of how our countries can work together.

As we all know, a vibrant small and medium enterprise sector plays a significant role in a country’s economic growth, whether it is a developed or developing economy. In the United States, 26 million small businesses generate more than half of the nation’s gross domestic product, create 80 percent of its new jobs and employ over half of the private sector work force.

Here in India, the small scale industrial sector continues to grow at a faster rate than the industrial sector as a whole. Indian Small Scale Service and Business Establishments are becoming a leader in knowledge technology, services and communication. Presently there are over 3 million registered small industries providing employment to around 18 million people. These numbers underestimate the real significance of small business for employment since a majority of small enterprises in India operate in the informal sector.

As a result of the economic reforms started in 1991, the number of venture funds in India has grown, particularly over the last few years. However, investments are either heavily in the IT sector or mature companies, leaving early-stage growth companies with dynamic entrepreneurs starved for capital. Surveys show that the average investment per deal has more than doubled from around $4 million to about $8 million, benefiting larger rather than smaller companies.

In order to help address the capital constraint that small businesses face, USAID, through the Small Enterprise Assistance Funds organization – SEAF – joined with Kotak Mahindra Bank to establish a venture capital fund dedicated to businesses that traditionally have trouble accessing equity funds: smaller companies, enterprises in sectors other than the “glamour” industries of IT or Business Processing, and women-owned businesses. USAID committed $5 million to seed the investment fund, which is managed by SEAF and Kotak, and has now helped leverage $50 million from Indian and international financial institutions. We understand that more investors are expected to join, increasing the fund to $90 million by the end of the year. SEAF also helps businesses to improve their marketing strategies, operations, financial controls and corporate governance, and access finance.

As a parallel to this investment in small business, USAID also partners with microfinance institutions such as Friends of Women’s World Banking, which support very small scale women-owned income generation efforts.

Why is it important to support women entrepreneurs?

First, many studies show that women are a good business risk. Globally, women’s repayment rates for micro-loans are high, at more than 95 %.

Second, though women tend to become owners or managers with less prior experience or training than men do globally, they possess qualities that have proven to be valuable in the business world. Studies suggest that they are less hierarchical, better listeners, and more talented at multi-tasking, and that women managers liberally seek and exchange information to make informed decisions.

Third, women-owned firms play a greater role in creating jobs. In the US, for example, employment expansion at women-owned firms was double the rate for all firms over the last six years.

Last but not least, when women are involved in income earning opportunities, the whole family benefits. Families are healthier, better fed and their income and savings go up.

Despite these benefits and the strong growth in women-owned businesses, women have received a disproportionately low share of venture capital funding. Again in the US, while the number of firms created and managed by women has grown twice as fast as that of all firms, women owned businesses receive only 5% of available capital.

In India, women-owned businesses doubled from 10% of private sector enterprises in 1991 to an estimated 20% today. However, there is room for further improvement. AWAKE – one of the partners of this conference – estimates that only about 12% of small-scale units are women owned. Given the economic benefits of investing in women-owned businesses, more needs to be done.

How can we collectively improve this situation? I would recommend the following:

First, policy reforms are needed that will improve the environment for small business and therefore women-owned enterprises. World Bank data shows that it takes nearly 90 days on average before a company can start operations in India. Compare this to Australia where it takes just two days to start a business or the South Asian average of 46 days. There are approximately 11 procedures required to start a business, versus 9 for the Asia region and 6 in developed countries. These numbers need to be lowered.

Second, the financial sector needs to reach more small and medium enterprises. Less than 20% of lending goes to these businesses. Moreover, the role of venture capital, while growing, is still minute.

This conference itself is an excellent step in advancing women entrepreneurs in India. I am glad that USAID is part of this effort, and very pleased to have such a range of local financial institutions, corporations, and associations as partners. I encourage the women entrepreneurs to take the lessons and insights that you learn today and prepare yourselves to approach the financial institutions to access capital that will position your companies for solid growth.

I wish to thank SEAF and its partners including Kotak Bank, Reliance Energy, SIDBI, and the Ford Foundation for the opportunity to participate in today’s important event.