Sharing Key Learnings of the Digital MSME Yatra - 2024. On-Ground Observation.

In July and August 2024, through my NGO (A Registered, Public Charitable Trust) Centre for Digital Inclusion and Social Impact, CeDISI, NGO , I undertook a two-month-long "Digital MSME Yatra 2024" in the Delhi-NCR region, engaging with over 65+ Early, Nano, MSMEs, industry experts, researchers, investors, practitioners, government agencies, associations across sectors including agriculture, textiles, fintech, supply chain, manufacturing etc. This journey offered an up-close view of the aspirations, challenges, and resilience of India's early, nano, micro, small, and medium enterprises (MSMEs). Through this article, I want to share my learnings and observations with you. The Yatra was also covered in various print and offline newspapers.

Here are some of the crucial insights gained from this Yatra:

1. A Micro is Not Just a Micro: Recognising Diversity Within "M" of MSME

The MSME category in India defines the "Micro" as enterprises with investment in plant and machinery or equipment up to ?1 crore and a turnover limit under ?5 crore. However, during our interactions, it became clear that someone with a 5 lakh turnover doesn't think, behave, seek support, and subsidy and operate like the one with a 5 Crore turnover, these businesses are worlds apart in terms of their aspirations, needs, and operational dynamics.

For example:

• A small clothing manufacturer with an annual turnover of ?5 lakhs is primarily focused on daily survival, seeking cash flow stability and local market access.
• On the other hand, a business with a turnover of ?5 crores is more interested in scaling operations, improving efficiency through technology, and exploring international markets.

Why It Matters: By clubbing them into one category, we risk applying a one-size-fits-all approach to policy support, subsidies, and interventions, which does a disservice to the entrepreneurial spirit of these diverse enterprises.

So beyond the existing MSME definition, based on Investment and Turnover, I propose the below definitions.

1. Early Stage: upto 5 Lakhs of Investment and 25 lakhs of turnover in INR

2. Nano Entrepreneurs: upto 50 Lakhs of Investment and 2.5 Crore of turnover in INR

2. Credit is Not the Only Universal Solution: Addressing Real MSME Challenges

While there is a common perception that lack of access to finance is the biggest hurdle for Early, Nano, and MSMEs, our findings suggest otherwise. Many entrepreneurs highlighted that market access, skills, and lack of awareness of government schemes are much bigger pain points than access to loans.

Key Takeaway:

• Not all Early-stage, Nano and MSMEs are looking for loans, so we must not apply the same lens to probe and support them. Many are surviving and thriving without loans as well. There is definitely a strong need for access to credit, but everyone needs a loan is the wrong way to approach entrepreneurs, we need to understand them and their needs better.
• Market Access: MSMEs struggle to tap into larger markets due to fragmented supply chains and inadequate distribution networks.
• Skills and Training: A shortage of skilled labour hampers productivity and growth. There's also a significant digital literacy gap, which prevents them from effectively utilizing digital tools.
• Scheme Awareness: A large majority of the MSMEs we interacted with were unaware of existing government schemes that could support their growth. A report by NIMSME states that 70% of MSMEs lack awareness of these programs, highlighting a critical information gap.

3. Loans are Not Always Feasible Due to Unstable Credit Cycles and Banks/NBFCs are not the only available option for funding now.

One recurring theme was the reluctance of MSMEs to take on loans, even if offered at low interest rates. The reason? Unstable sales and credit cycles. Many entrepreneurs shared how they cannot commit to monthly EMI payments due to delayed payments from their buyers, especially in sectors like textiles where credit cycles can extend to 6 months.

Thanks to Shark Tank India , Start Up ecosystem, funding stories, IPOs and the increasing list of Angel and Venture Capitalists and many other such formats that MSMEs are exploring and benefitting. Many are aware of the alternate funding route.

They need money to Start, Run and Expand, which need not necessarily be the debt, the colour of that can be any other legal form as well. Wake up and Shake up, legacy and incumbents.

Quotes from the Ground:

• “A loan doesn’t make sense when my payments come in only after 3-6 months. I’d rather manage with internal funding or personal savings.”
• “Overproduction and slow-moving inventories in my industry mean cash flow is unpredictable.”

4. Information Privacy Concerns Limit Technology Adoption

While digital tools are being embraced for operational efficiency, MSMEs remain wary of using online platforms due to information privacy concerns. For instance, sellers in the commodity sector (like fabric and textiles) expressed hesitation in listing prices online for fear of undercutting by competitors.

Key Insights:

• They fear disclosing rates could disrupt their local pricing dynamics.
• Concerns over who has access to their stock levels, pricing, and customer data remain high, limiting their willingness to adopt integrated solutions beyond trusted platforms like WhatsApp, where they have clear visibility and control of who will have access to their information.

5. WhatsApp is the Default CRM for MSMEs

When discussing digital tools, WhatsApp emerged as the most trusted and widely used platform. Entrepreneurs value its simplicity, group visibility, and control over access.

Suggestions for Tech Developers:

• Build solutions that integrate with WhatsApp Business or mimic its ease of use. Can we have a chatbot that an MSME can add to their whats apop groups and that Bot will automate the accounting for them than MSMEs doing it themselves?
• Prioritize transparency, information protection, and user control to build trust.

6. Addressing MSME Challenges: A Thematic Approach

Through our discussions, we categorized MSME challenges into three primary themes with actionable sub-points:

A. Financial Challenges

• Access to Finance: Despite multiple government schemes, stringent criteria and collateral requirements limit MSME access to credit.
• Awareness: Many MSMEs remain unaware of beneficial schemes like SIDBI’s support programs, digital lending platforms like TReDS, or cash flow-based lending options.

B. Technology and Innovation

• Low Technology Adoption: Digital tools are not widely adopted due to a lack of digital literacy.
• Business Efficiency: Concepts like Zero Defect Zero Effect (ZED) and Lean processes need to be demystified for MSMEs to improve efficiency.

C. Market and Workforce Challenges

• Market Access: MSMEs find it challenging to scale due to limited marketing networks and export barriers.
• Skilled Workforce: The gap in skilled labour training remains a pressing concern, limiting their ability to leverage digital transformation.

7. Digital Lending: A Growing Opportunity Yet to Be Tapped

According to Experian India and DLAI reports, the MSME credit gap stands at ?20-25 lakh crore, approximately 30% of India’s GDP. Digital lenders have emerged as crucial players in bridging this gap, especially for MSMEs with bureau scores below 700. Fintech solutions, backed by initiatives like India Stack, are transforming the credit landscape by enabling cash flow-based lending.

Notable Trends:

• Supply Chain Financing: Fintechs are increasingly focusing on business loans under ?5 lakh to cater to MSME needs.
• Data Sharing: Over 75% of MSMEs are now comfortable sharing digital data for credit evaluation. The Sahamati Account Aggregator framework and ecosystem will work.

8. Building a Plug-and-Play DPI for MSMEs

The next step for India’s MSME ecosystem is to develop a plug-and-play-based Digital Public Infrastructure (DPI) that empowers hyperlocal communities. Such an infrastructure can:

• Reduce carbon footprints by optimizing supply chains.
• Facilitate token-based community ownership, increasing transparency and trust.
• Create a holistic digital ecosystem tailored to the needs of nano and micro enterprises.

The Road Ahead for MSMEs and Digital Transformation

The future of India’s economic growth, employment generation, and innovation lies in the hands of MSMEs. However, beyond tools, strategies, and interventions, what truly matters is a deeper sensitivity to the aspirations and challenges of these entrepreneurs. By tailoring our support to their unique needs, we can empower MSMEs to not just survive but thrive in the digital era.

This journey has shown me that, while we talk about digital transformation and financial inclusion, it's time we align our efforts with the realities of MSMEs on the ground. The Digital MSME Yatra was just the beginning; the real work lies ahead in building bridges, fostering trust, and ensuring that the smallest voices in the economy are heard, supported, and uplifted. We are getting ready for the Digital MSME Yatra 2025 if you want to support the Centre for Digital Inclusion and Social Impact, CeDISI, NGO , so that we can have a bigger impact with more outreach and detailed reports, feel free to support us.

Among many other supporters, I am also thankful to NSICLTD and its management for sharing their guidance and support in the journey.

Share your thoughts. Below are a few more snippets of our on-ground journey.