Credit demand by Micro, Small and Medium Enterprises (MSMEs) has bounced back to pre-Covid levels as per a report by NeoGrowth, an MSME focused fintech non-bank lender. The non-bank lender said in certain cities like Bengaluru, the demand exceeded pre-pandemic levels.
The report studied over a base of 40,000 MSMEs from 25 cities across 88 industries, analyzed between March 2020 to March 2022, examining the challenges encountered by MSMEs during the pandemic, impact of support measures on the recovery, digital adoption and other things.
At the same time, the non-bank lender saw a 30 percent jump in its customer base from 16,087 to 20,868 in the same period.
Arun Nayyar, Whole Time Director and Chief Executive Officer, NeoGrowth said, “Many MSMEs were struggling in 2020-21 due to the burden of loan repayments because of the cessation of demand from consumers. Early on in the pandemic, we identified that MSMEs needed extra support since this was a genuine business disruption. We realized that MSME customers were inherently honest and had the willingness to pay back. NeoGrowth handheld them throughout their journey, right from proactively understanding their sentiments at the beginning of the pandemic to supporting them so they are able to bounce back.”
“The MSME ecosystem in India is a ‘Survival to Revival’ saga. The vital lessons learned from the pandemic have transformed the way businesses operated and fast-tracked their move to digital. The credit demand from MSMEs is back to a healthy level,” he further added.
As per the report, in early 2020 during the onset of the pandemic, MSMEs were worried about their credit scores getting negatively impacted due to non-payments, whereas 65 percent MSMEs were confident of business recovery within 3 months. 93 percent MSMEs had planned to reduce operations costs to manage liquidity and only one percent expected a complete shutdown of their business operations.
Beyond expected troubles, only 46 percent MSMEs across India needed financial support to mitigate the impact of Covid-19, with higher demand from non-metros than metros. Maharashtra was the worst affected state during the first wave with close to 50 percent MSMEs in Pune and Mumbai seeking financial support.
During the same period, MSMEs reinvented themselves by adopting digital solutions for their business, acquiring new skills, diversifying their customer base, and adopting digital lending for their financing needs.
MSMEs were better prepared when the second wave hit the nation, adjusting to the new business environment rapidly. Back then, only 30 percent MSMEs required support in Wave 2 as compared to Wave 1. Around 63 percent of MSMEs continued to show intent to honor their commitment despite being severely impacted or facing a business shutdown.
Fast forward to March 2022, the report observes that MSME credit demand from non-metro cities was back to pre-Covid levels whereas that in metro cities was lagging marginally. Non-discretionary demand-oriented business segments like petrol pumps, infrastructure, and auto recovered faster than consumer-facing and discretionary demand-oriented businesses.
The non-bank lender said new opportunties have been unearthed for the MSME ecosystem in these last two years, traditional ways of borrowing and conducting business had to make way for new age digital channels and subsequently digital lending became increasingly important to infuse the required funds into the MSME ecosystem.