SMEs being one of the largest employing segments form 95% of all business in India. Despite contributing 30% of the GPD they account less than 20% of credit exposure to industries. In an order to bridge this gap with an impending economic resurgence for MSMEs, the finance task force of the Global Alliance for Mass Entrepreneurship (GAME) has launched ‘Unlocking Credit for India’s Job Creators’. Which talks about greater access to formal finance, easing working capital needs, mitigating risk through insurance.
Ravi Venkatesan, Founder, GAME said, “With the call for an ‘Aatmanirbhar Bharat’, the Government of India has signaled that MSMEs will drive job creation in India. However, MSMEs in India struggle to grow out of cycles of informality, low productivity, and low scale. Finance is critical to break this cycle as entrepreneurs can invest in machinery, upskilling workers, and new units thereby increasing productivity and scaling up. Our report brings together some essential ideas to accelerate finance towards India’s job creators ”
Less than 15% of India’s MSMEs have access to formal finance. The report identifies the importance of NBFCs, FinTech firms, and platforms such as OCEN as lynchpins for bringing these new to credit customers to the formal. Partnerships with India’s banks are critical to their success. However, 80% of bank exposure to NBFCs goes to just 30 entities, limiting the pie for several smaller NBFCs and FinTech lenders, who struggle to scale quickly.
It also estimates that nearly Rs 15 lakh crore of MSME receivables are stuck with their buyers and these delayed payments create problems of working capital crunch reducing production cycles, investments and job creation. It also translates to higher cost of goods for the buyer.
Further, Supply chain financing and factoring can be both beneficial for buyer and supplier. Either through bilateral contracts with banks or platforms like TReDS, MSMEs can leverage working capital quickly and the report identifies policy changes which can expedite the uptake of such mechanism.
Anjuly Duggal, GAME Finance Taskforce Chairperson and former DFS Secretary, Government of India said, “Delayed payments result in higher costs of goods and services for buyers and raise the cost of finance for suppliers. They have a baneful impact on both the GDP and the resilience of supply chains. Supply chain financing and factoring solutions can smoothen cash flows. Timely payments, by resorting to financing solutions or otherwise, carry their own incentives. Balancing these by disincentives for payment delays, can greatly benefit the MSME segment and the economy as a whole.”
The report believes that these themes are critical for MSMEs to be resilient as there’s a second Covid-19 wave ongoing and subsequent shocks and stresses as well. It added, “Going forward, the taskforce intends to engage stakeholders mentioned through the report. Several solutions will likely require greater deliberation and GAME intends to support or initiate multi-stakeholder coalitions that could begin to crack these problems open.”
