{"id":15148,"date":"2020-12-20T02:33:39","date_gmt":"2020-12-20T02:33:39","guid":{"rendered":"https:\/\/www.wfglobal.org\/?post_type=press&p=15148"},"modified":"2023-12-11T17:53:34","modified_gmt":"2023-12-11T12:23:34","slug":"re-imagining-finance-for-msmes-to-transform-the-indian-economy","status":"publish","type":"press","link":"https:\/\/wadhwanifoundation.org\/pt\/press\/re-imagining-finance-for-msmes-to-transform-the-indian-economy\/","title":{"rendered":"Re-imagining finance for MSMEs to transform the Indian economy"},"content":{"rendered":"

\u201cEvery business starts small.\u201d<\/strong><\/p>\n

Por Ashwin Chandrasekhar and Mathangi Chandrasekhar<\/strong><\/span><\/p>\n

Our small businesses are the growth engines of the Indian economy, contributing 30% of the GDP. However, they are facing the most trying times during this pandemic.<\/p>\n

At least 10% of micro-enterprises, 99% of India\u2019s enterprise base, shut shop permanently post lockdown. Widespread informality and limited access to formal credit among India\u2019s ~70 million enterprises has meant that less than 7% of India\u2019s enterprises will benefit from the Government of India\u2019s well-intentioned Emergency Credit Line Guarantee Scheme (ECLGS), a fully guaranteed and subsidized top loan for existing formal borrowers. Soon to be deployed schemes \u2013 fund of funds and distressed asset funds \u2013 are much smaller in scale and will likely support a creamy layer and well-established set of enterprises.<\/p>\n

Lack of formal finance is one constraint. IFC\u2019s report on the MSME credit gap in India suggests 70% of credit demand remains unmet among MSMEs. This gap means that entrepreneurs are unable to expand inventory, invest in machinery or upgradation. While entrepreneurs consistently speak about the impossible conditions, onerous procedures, paperwork and delays to source credit, bankers complain that many business owners are just not \u2018finance ready\u2019. This stalemate persists, and despite a significant push from the government, MSME lending remains below 20% of a typical bank\u2019s portfolio. A whopping 65% of micro-entrepreneurs relied on family and friends for credit or grants through Covid, with many dipping into personal savings of up to a lakh to ensure business survival.<\/p>\n

\u2018I borrow money from friends to purchase stock and taken gold loans to pay bills and salaries; only 20% of my customers pay immediately and over 80% purchase everything on credit\u2019 \u2013 Small grocer in Thiruvallur, Tamil Nadu<\/strong><\/em><\/p>\n

Another structural challenge, exacerbated by Covid, is delayed receivables. Hailed as the \u2018biggest problem faced by Indian MSMEs\u2019, over 5 lakh crores, amounting to a third of MSME sales, is stuck in delayed payments from state and central public sector companies and large private companies. Low bargaining power and delays in the judicial system mean that MSMEs are essentially stuck with 17% of them writing off up to 20% of their receivables.<\/p>\n

Amid this doom and gloom, however, age-old solutions have received a significant boost. Gromor Finance, an upcoming NBFC, for example, has partnered with deAsra Foundation, an entrepreneurship support organization, to launch a Covid recovery loan product.<\/p>\n

\u201cA major reason for the stalemate between banks and nano and micro-entrepreneurs is information asymmetry. While many of ~1000 entrepreneurs Gromor reached out to qualified for the \u2018Sahayata loan\u2019, many were rejected because of basic documentation \u2013 address proof, UPI enabled bank accounts etc.\u201d \u2013 Shailesh Dixit, Co-Founder, Gromor Finance<\/em><\/strong><\/p>\n

According to Gromor at least 50-60% of rejected loan applications were because of basic documentation. NBFCs and FinTech players such as Gromor have a window of opportunity and are most likely to drive a virtuous cycle of formalization \u2013 formal credit \u2013 job growth among India\u2019s MSMEs.<\/p>\n

FinTech and NBFCs contribute to ~40% of new to credit borrowers, twice as much as private and public sector banks. Hence, unlocking credit flow to these \u2018new age\u2019 players is a national imperative. However, many unrated or low rated NBFCs, who typically serve nano and micro-entrepreneurs customers, and are at the forefront of India\u2019s movement towards formal entrepreneurship, are unable to serve customers at full capacity. Therefore, both the central and state governments are only able to support a fraction of MSMEs. Several financial innovations are leading the charge in bringing many more MSMEs to the formal fold. Cluster-based financing is one example. By assessing the credit worthiness of MSMEs at a cluster level (e.g. shoe manufacturers), financiers can build a profile of \u2018thin file\u2019 enterprises through a deep understanding of cash flows, business cycles, and industry trends. NBFCs such as Aye Finance and FinTech players such as Credochain, Svakarma leverage cluster-based financing to keep acquisition costs and default rates lower.<\/p>\n

Factoring and supply chain financing are game changers for delayed receivables. TReDS, a digital factoring platform, has over 12000 MSMEs and has cleared invoices worth 22,000 crores in the last 3 years. The ecosystem of buyers, sellers, and financiers offers a robust mechanism for MSMEs to get payment on time. However, the platform requires reform to boost the number of financiers, MSMEs, and large buyers on the platform.<\/p>\n

A final unlock for MSMEs will be insurance. With Covid, \u2018business break\u2019 insurance has become a topic of conversation in policy and corporate circles. Given the complexity of the MSME landscape, a bundled product which starts from a universal no-frills product to add-ons that MSMEs can pay for basis their unique context will help. IRDAI recently announced that two products for MSMEs are in the works and as an ecosystem, we need to help strengthen and mainstream these offerings.<\/p>\n

India has immense entrepreneurial potential that continues to remain underleveraged. While finance is one element to build a dynamic biosphere of entrepreneurship, the Covid crisis has brought in unprecedented urgency to reach and support MSMEs and create a comprehensive, integrated policy to promote skill development and liquidity.<\/p>\n

Fonte: The Times of India<\/a><\/p>","protected":false},"excerpt":{"rendered":"

\u201cEvery business starts small.\u201d By Ashwin Chandrasekhar and Mathangi Chandrasekhar Our small businesses are the growth engines of the Indian economy, contributing 30% of the GDP. However, they are facing the most trying times during this pandemic. At least 10% of micro-enterprises, 99% of India\u2019s enterprise base, shut shop permanently post lockdown. Widespread informality and […]<\/p>\n","protected":false},"author":27,"featured_media":14233,"template":"","tags":[7],"press-category":[],"coauthors":[],"class_list":["post-15148","press","type-press","status-publish","has-post-thumbnail","hentry","tag-authored-articles"],"acf":[],"_links":{"self":[{"href":"https:\/\/wadhwanifoundation.org\/pt\/wp-json\/wp\/v2\/press\/15148","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/wadhwanifoundation.org\/pt\/wp-json\/wp\/v2\/press"}],"about":[{"href":"https:\/\/wadhwanifoundation.org\/pt\/wp-json\/wp\/v2\/types\/press"}],"author":[{"embeddable":true,"href":"https:\/\/wadhwanifoundation.org\/pt\/wp-json\/wp\/v2\/users\/27"}],"version-history":[{"count":0,"href":"https:\/\/wadhwanifoundation.org\/pt\/wp-json\/wp\/v2\/press\/15148\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/wadhwanifoundation.org\/pt\/wp-json\/wp\/v2\/media\/14233"}],"wp:attachment":[{"href":"https:\/\/wadhwanifoundation.org\/pt\/wp-json\/wp\/v2\/media?parent=15148"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/wadhwanifoundation.org\/pt\/wp-json\/wp\/v2\/tags?post=15148"},{"taxonomy":"press-category","embeddable":true,"href":"https:\/\/wadhwanifoundation.org\/pt\/wp-json\/wp\/v2\/press-category?post=15148"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/wadhwanifoundation.org\/pt\/wp-json\/wp\/v2\/coauthors?post=15148"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}