Access to capital is the most significant hurdle to MSME growth in India – GAME

Key stakeholders of the financial ecosystem addressed the immediate demands of the MSME sector, noting that in order to continue the goal of “Atmanirbharta,” the MSME sector must seize the chance during the second wave of the epidemic.

Delayed payments to MSMEs amounting to Rs. 15 lakh crore per year in violation of the Micro, Small and Medium Enterprises Development (MSMED) Act were the main topic of a round table discussion “Access to Finance- The Biggest Impediment to MSME Growth in India.” held by Global Alliance for Mass Entrepreneurship (GAME) and its partners on Friday.

The speakers underlined that in times of Covid, when demand is constrained, MSMEs can profit substantially from on-time payments. The recommendations included market-driven solutions such as mainstreaming receivables discounting, particularly through the ‘soon to be tabled’ factoring amendment bill, as well as supply chain financing solutions that incentivise large buyers to initiate supply chain financing for their MSME suppliers.

It was also reiterated that additional specific financial obstacle that ‘New to Credit’ (NTC) and ‘women-led firms’ encounter and to enhance optimism, the panel advocated supply chain financing and factoring as a key tool that may provide MSMEs with much-needed credit quickly while simultaneously encouraging them to formalise their firm.

The panelists included Nirav Choksi, Co-founder & CEO, CredAble, Ketan Gaikwad, CEO, Receivables Exchange of India (RXIL), Brajesh Palsaniya, Head – Treasury, Raymond, and Kinjal Sampat, Vice President – Research, GAME.

Srinivas Rao, CEO, Global Alliance for Mass Entrepreneurship (GAME) stated “Finance is a crucial input for MSME survival and growth. Banks are unable to underwrite MSMEs because of low levels of digitisation and lack of documentation such as IT returns. This lack of formalisation can be addressed by supply chain financing that relies on the credibility of a buyer or a GST invoice to finance MSMEs which circumvents some of traditional challenges to lend to the segment.” 

Brajesh Palsaniya, Head – Treasury, Raymond added “In these troubling times for MSMEs, large corporate houses who work with these firms can help in several ways. Supporting invoice discounting on TReDS, for example, allows us to retain flexibility with our cash flow while ensuring immediate liquidity to MSMEs. Similarly, bilateral supply chain financing arrangements with banks prevent cash flow mismatch. There is an excellent business case for tier – 2 and tier – 3 MSME suppliers to have access to credit. It builds resilience of our own supply chains.” 

Nirav Choksi, CEO & Co-Founder, CredAble stated, “Through Covid, we are seeing an increased interest from corporates to unlock credit for the MSME suppliers. These are challenging times for the sector and mechanisms to increase credit flow to MSMEs are much needed”.