MSME - The (Back)bone needing calcium

Been there done that:

Inadequate funding to MSMEs has always been a burning issue in this country. Several committees, formed by the Government, Ministry of MSME and RBI, have submitted their findings mentioning the ‘access of credit’ as one of major hindrances towards the development of this sector over the years.?

Ignore at own peril:

Though there are some other significant challenges facing them for a long time now. One of them, which is very crucial and hampers MSMEs’ working capital needs, has been seldom discussed and addressed, out of fear of losing business by MSMEs themselves. That is “delayed payment made by the buyers (corporate segment, PSUs etc.) to the MSMEs for supply of goods and services”. The MSME Development Act 2006, had these points crystal clear under the heading “DELAYED PAYMENTS TO MICRO AND SMALL ENTERPRISES” (Chapter V). Covid period was just an extension and aberration of this under the carpet pain point of MSMEs.

Covid throttle:

A huge number of MSEs have closed down their units, many were forced to sell off their properties, hundreds and thousands are trying hard to stay away from going to ARCs and lakhs of them are putting up a brave fight to stay afloat.?

Prolonged Covid19 period created havoc to business houses world over but more damage was done to traditional MSME businesses where (salient causes)

• MSMEs didn’t see the digital age coming fast.
• Their ecosystem had just their buyers and suppliers.
• Buyers were more important than suppliers.
• E markets were ignored out and out.
• They didn’t alter their working as Many to One (supplier to buyer).
• Non-traditional means of funding (borrowing at exorbitantly higher interest rates).
• Funds were not used properly in the business.
• A strong rapport with lenders was not established.
• Digital mode of banking was not opted for.

There could be many more reasons (besides Covid driven ones) but the above ones are so gullible that MSMEs can sit back, discuss, debate and deliberate.?

Attention! We need MSMEs:?

The silver lining during the bygone unseen tough times for businesses, during Covid, could be the prompt policy measures and acts of the Governments, across the globe. All this, once again, proved that if MSMEs are to sustain, crystal clear policy guidelines are to be written and implemented. There will come the need for changes and reworking at regular intervals of time but the existing ones must be accepted and adhered to by all the stakeholders and ecosystem players.

Other than the central government’s initiatives, state level ones might come handy towards helping MSMEs upgrade their overall operation and working on and with technology, Industry Associations can be the nodal bodies to promote competitiveness amongst members (MSMEs), long pending slow development of clusters (even the smaller ones) in tier II and tier III towns and locations, providing strong infrastructure in terms of electricity, roads and water, raw material supplies and last but not the least financial assistance to MSMEs.

Let us explore:

Few of the areas that may add value and create catalytic support to MSMEs could be:

• Bring in respective SFCs (State Finance Corporations) and IDCs (Industrial Development Corporations) work in tandem with SLBCs.
• Like Banks, this new team of SFC and IDC should be given a lending target of 80 percent to priority sector and 50 percent (out of that 80) to MSEs in rural areas.
• Fintechs reaching out to MSMEs with banking services may be included in the SLBCs.
• SIDBI and NABARD may select and form a team of Fintechs and MFIs with some vintage and larger distribution reach.
• Selected and deserving Fintechs should be given funds to deploy to MSMEs in rural areas. A different credit assessment mechanism (differentiated than banks’) for MSMEs should be devised, where cash flow based lending with partial collateral is guaranteed.
• A LTC-LIR (Low ticket credit, lower interest rate) model lending to MSEs can be initiated for Agri and Food producing units.

Glancing through Governments’ help:

The Covid19 crisis saw some new steps being taken by countries for their MSMEs. This shows the seriousness of even developed economies towards their MSMEs. Some interesting moves pertaining to MSME support by different countries are as below:

• Denmark came up with “Salary compensation and loan guarantee”.?
• France guaranteed (up to) 90 percent of liquidity enhancement loans.
• Germany came up with “Quick loans to MSMEs depending upon turnover”.?
• Italy extended loan repayment suspension along with special assistance to start up enterprises.?
• Spain gave “Relief in payment of energy bills(gas, electricity) and liquidity measures designed to compensate for closure or losses and targeted towards maintaining employment.?
• Loan guarantee up to 80% and bounce back loan(25% of turn over) for six years with one year moratorium in the UK is worth mentioning.?

The Government of India did come forward advising the banks to help MSE borrowers. Public sector banks reached out to MSEs extending the much needed support by providing 20% of the outstanding loan, as on specific date, with moratorium and guarantee coverage to Banks/lenders. The scheme named ECLGS saved many MSMEs.

Finally:

In all probability MSMEs’ task is cut out clearly. On one hand they can expect more and more hassle free work environments and friendly government policies but on the other hand they are to play self defying roles for themselves, and for the country. The backbone of the Indian economy must slog it out to get calcium on their own, in order to gain power and respect rather than sympathy. It is in their hands to be seen as muscle or fat.?

Moreover, Startups are waiting to seize the limelight as they tend to read CHANgE as CHANcE.

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Avinash Chandra Jha, has been serving the Large Corporate and MSME sector collectively for over a decade and half as a Banker, Risk Information and Rating executive, an Export Manager and now a Rural Fintech Professional. The opinions expressed are personal.

My gratitude and acknowledgement to Google for these complementing pics. Thankful and Grateful shoutout to GoI.