MSME businesses are one of the major key players in the Indian
markets in the current era. It is very important to pay attention to the
varieties of businesses that are trying to come to shape with the advent
of this nascent industry. It is very useful for now to look forward for
Emerging business models that can bridge the credit gap in the MSME
sector. There is a Rs 25 lakh crore credit gap in the MSME sector can be
potentially addressed through different Emerging business models.
There are a lot of MSME benefits already made use of by the businesses
belonging to the MSME sector. It is important for a small business to
get registered as a MSME. A variety of MSME schemes have been
launched for the sake of the industry participants and as a result of
which many new businesses are getting involved into the sector more
seriously than before.
There has been a perennial problem of raising funds within the MSME
sector. It is of extreme importance for all the MSMEs to take care of
their finances at times of crisis. Just after the turmoil caused due to the
Covid pandemic many of the businesses lost their way of doing andEmerging business effectively. This is where the credit gap within the MSME sector
started to widen and as a result of which many of they fell apart and
eventually got replaced by businesses that could better take care of the
financial well being.
The Ministry of MSME has been instrumental in providing all the
various different MSME loan schemes for new businesses. It is
necessary for the participants of this sector to make a timely
observation of what is happening within the sector as well as outside.
The current macro economic condition of the world economy is in a
state of turmoil due to the Russia war and the sources of liquidity have
dried up as they money flow went out of the system due to rising
central bank interest rates leading up to severe downturn for the
equities.
Majority of the Global indices have been in a sort of a limbo for a while
now as they is severe risks of a pent of recession and lack of growth.
These are the major concerns why VCs are not funding nay more
startups and are keeping a check on their balance sheets so as not to
overspend in a particular sector get themselves wiped out.
These are tough times for MSMEs to survive. The Indian financial
market yet proved to be somewhat resilient during this macro
downturn as the recent inflation numbers came out to be relatively
lower than the estimates that were originally expected. The
Government schemes for the MSMEs have proved to be very valuable
for the MSME businesses. There was a credit guarantee trust for micro
and small enterprises. Government Initiatives such as MUDRA, TReDS,
India Stack, AEPS, Account Aggregator, Open Network for Digital
Commerce (ONDC), Open Credit Enablement Network (OCEN) etc. have
helped increase formalization of the MSME segment and fast-tracking
the growth.
The early-stage venture capital firm BLinC Invest noted that the Rs 25
lakh crore credit gap in the MSME sector can be potentially addressed
through four “Emerging business models”. According to a report
published India MSME Lending Landscape by the VC firm, “four
business models have been identified as white spaces which have a
large opportunity – anchor-based supply chain finance, point of sale
(PoS) financing, NBFCs (with branch network) and embedded finance,”
as less than less than 15 per cent of the MSME credit demand is catered
by formal sources.
For more information: https://smeventure.com/new-entrants-that-are-changing-the-face-of-msmes-in-india/
The Anchor based supply chain finance provides a large opportunity
since currently the product offered to majority of the MSMEs is term
loan whereas their requirement is a working capital loan for financing
their inventory purchases. Second, adoption of PoS terminals is
expected to be further improved by offering MSMEs value-added
services such as receivables and payments management helping them
increase footfall with targeted services to customers.
Third, NBFC segment with branch network has seen increased
participation in recent years and is expected to grow further catering to
the underserved credit demand in the semi-urban and rural pockets of
the country. And lastly, embedded finance is expected to enhance
credit approval process by looking at transactional data built over a
period of time and understand the heterogeneity of the segment and
offer tailored financial products.
Do watch: https://www.youtube.com/shorts/mxmhEv0xPgM
The report published by the Venture Capital firm included strategies
like on ground visits and telephonic interviews with the different
MSMEs belonging to different parts of the country across fifteen states
and interviews with key industry leaders in the financial services sector
along with a lot of secondary research data.
The volumes of the maximum number of MSMEs are largely
concentrated in some of the largest states in India by size that includes
Maharashtra, Uttar Pradesh, Karnataka, West Bengal and Tamil Nadu.
Since these states have a lot of population involved in small businesses
the majority of the MSME activity thrives in these areas. There is a huge
demand for their products and services internally within the region and
therefore there is a lot of employment opportunities as well.
The majority of the MSME benefits and MSME schemes have been duly
utilized by the participants of this sector and which has helped many of
them at times of stress to tackle and come back to track. The MSME
industry in India is fortunate to have a dedicated Ministry to the
entirety of the sector as a result of which there is a maximum support
for the activities of this sector. The proliferation of traditional and Emerging
business into the MSME sector is a strategic win for the sector in
welcoming new participants and increasing the level of competition.
The key stakeholders also contribute a lot in terms of providing
strategic partnerships for the MSMEs and help them move ahead for
the coming future.