SFS 2022: Lending to SMEs for Growth and Revival of Indian Economy

The last two years for the industry has been telling and quite a lot have changed from the perspective of lending, while there exists a clear demand there is a gap between lending and the requirements of funds.

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Past few years, we have seen MSMEs are in trouble in getting funding from financial institutions. Subsequently, the government has come out with multiple packages, which has helped MSMEs and NPAs have been avoided. However, SMEs still find many problems in availing of finance; financial institutions fear recovery woes. The other major issue that the sector faces is funding getting stuck at the buyer side, which leads to a problem in funding the business or working capital requirements. This is the one area we are trying to solve and discussing with respective government bodies.

Secondly, through our champion portal, we are trying to advise SMEs to keep their balance sheet neat and clean. A lot of these things lead to funding issues if there’s a mismatch between taxes paid, turnover size and among other things. The gap between the entrepreneur’s expectation and turnover of the business often leads to a tough decision for the financial institutions to lend or not to. So MSMEs need to work on maintaining financial discipline.

We have seen a surge in the number of applicants seeking digital loans where borrowers want speed, transparency and real-time information. We see a rise from lenders too. On one side, SMEs who were not tech-savvy have started coming forward and making it preferred to do transactions. Lenders on three sides, banks, NBFCs and Fintechs – too have upped their game and doing partnerships on the ground.

These partnerships are evolving and scale the size and quantity of loans; financial institutions too have started leveraging digital as it’s all about speed, scale and efficiency.

No doubt the pandemic has fastened the digital processes, and the government, too, has rolled out some of the packages for the SMEs. ECLGS enhancement has been excellent; It looks like it will be extended in the coming times.

Pick-up on the schemes around stressed SMEs has not been very much which has been acknowledged by the ministry too, and some amendments can be expected here. However, the revisions around MSME classification have been in the right direction and created clarity for lenders. Similarly, delayed payments have been long pending issues, and it takes a longer time and shall be looked upon to solve the problems.

TReDS also has to make its mark, even as some public sector entities have yet to register on the platform. The registrations on official portals are too slow, and many improvements can be made, leading to efficient lending.

Micro-enterprises have many cash-intensive transactions that are not recorded on books. These can be solved and addressed as more digitization happens and account aggregators bolster MSME lending.