August 28, 2020
Was 2019 the Best Year Yet for Small and Growing Businesses in India?

2019 was a promising year for the small and growing business (SGB) ecosystem. The recently released State of the Small and Growing Business Sector report from ANDE shows that a wide variety of investment vehicles were launched last year, committing capital close to $3 billion. At least three major catalytic capital activities, with a combined funding pool of close to $329 million, were also launched in 2019, reinforcing the work by various intermediaries advocating for a blended approach to solving development challenges.

Closer home, in 2019, India was ranked as the fifth most startup-friendly country in the world, partly due to the government’s push to building strong entrepreneurial ecosystems in the country. A continued support towards amplifying capital towards social impact was emphasized through the government’s decision to establish a social stock exchange (SSE). This announcement has seen fair amount of groundwork being laid, as a working group of experts have since submitted their recommendation on ways to action the SSE.

We also witnessed the launch of exciting and pivotal programs. ANDE launched the Advancing Women’s Empowerment Fund (AWEF), which will distribute $1.2 million in funding over two years through one-year grants of up to $150,000 to entrepreneurial support organizations in Asia. Eight organizations will receive funds under the Fund’s first round, with proposed projects covering Cambodia, India, Indonesia, Myanmar, Nepal, Pakistan, Philippines, and Vietnam.

The impact investing sector has also evolved over the past decade. According to The India Impact Investing Story, a recent report by ANDE members Asha Impact and Impact Investors Council, impact enterprises in India collectively raised $10.8 billion from 2010 to 2019, impacting 490 million beneficiaries, mostly belonging to low income communities underserved by traditional businesses and public sector social service delivery. McKinsey research further corroborates the potential this sector holds in India, expecting a possible $8 billion in annual deployment in 2025.

The National Institution for Transforming India (NITI Aayog) has created a Sustainable Development Goal (SDG) India Index to provide a comparative dashboard for states’ performances across indicators to achieve SDG targets. The index maps SDGs to ministries and departments. This institutional support has allowed for donors to find a renewed alignment to continue a focused approach in this direction. The Bain & Company and Dasra India Philanthropy Report 2019 found that despite a recent slowdown in foreign funding, the role of private funding has continued to increase led by individual philanthropists. This drive has brought about a push resulting in positive outcomes across some pivotal development indicators.

2020, on the other hand, has been a wild ride.

Credit: Unsplash

To say that the COVID-19 pandemic has caused a disruption would be a massive understatement. Across countries, economies, and sectors, the world is reeling from the aftermath of the COVID-19 crisis. SGBs are one of the hardest-hit segments, with over 40% of those in developing economies in danger, according to ANDE research.

Major disruptions to Indian SGBs, as seen in other developing contexts, are largely stemming from an impact on supply chains and changing consumer habits. To avoid closures, SGBs are taking a myriad of steps to cushion the blow, including downsizing or closing temporarily. It is evident that there is an urgent need of liquid funds to get SGBs back on their feet. Indian government support schemes are doing a good job of shining much-needed spotlights on the hit the entrepreneurs have taken but are yet to translate into real, impactful support on the ground to those who mostly need it. An example is how the relief scheme announced for MSMEs is only applicable to those enterprises that have availed a loan previously. This is one such way in which a significant number of early-stage entrepreneurs looking to the state for their emergency capital needs are being affected as they attempt to get back on their feet.

While looking at the intermediary ecosystem, we can see that the support organizations are also facing serious risks. Capacity development providers, along with other research & advisory organizations, face a risk of shutting down.

Finally, it’s critical to acknowledge — and respond to — the significant differences in impact by gender in the pandemic’s fallout; In India, the percentage of women-led businesses that are contemplating permanently shutting shop are almost twice that of men.

Access to grants, emergency debt financing and direct flexible funding is an urgent need for many in the SGB sector. As we look to build back better, it is imperative that we prioritize those most in danger of being left behind. A lot of how we are able to get the SGB ecosystem back on track and on a continued path of growth will depend on how we use this disruption in time to guide our learnings and next steps.