How is the MSME segment getting support from government schemes and fintech?


If you closely analyze the market performance of any business entity, everything ultimately boils down to one crucial factor – business financials. The business entity has to smartly manage its operations in line with its assets, current and projected financial inflows, liabilities, and supply-demand forecasts vis-à-vis the market. Then, after considering these factors, it has to devise its own strategy for across-the-board operations, including inventory and resource management, process enhancement, technological upgradation, marketing campaigns, and so on. But if the finances of a company are dwindling, it has a cascading effect on all of these operations, ultimately hampering its market performance and viability.

Unfortunately, MSMEs, which contribute 45 percent to the nation’s GDP according to MasterCard’s ‘Micro Merchant Market Sizing and Profiling Report’, are often left with their finances dwindling. This is despite them being on an uneven playing field with larger enterprises that are benefitted by voluminous orders, larger market size, state-of-the-art technologies, and economies of scale. They also have a broader channel network and an array of tie-ups that help them transfer greater efficiencies towards individual processes, including logistics, supply chain management, etc.

But thankfully, recognizing the immense potential that these growth engines have, and given the sheer size of the segment, both government and independent market players are coming to support the MSME segment. Let us, then, analyze how this development is contributing to the sector.

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Understanding MSMEs – can they redefine our nation’s growth?

Despite their sheer size, MSMEs collectively yield about 45 percent of the overall share of the manufacturing sector and contribute 40 percent to the nation’s exports. They are also responsible for 69 percent contribution to the employment sector of the country. According to MasterCard’s abovementioned report, their contribution to the GDP, i.e. 45 percent, is about three times of what corporate India makes. These hard facts, by themselves, clearly explain to us their significance for our growing economy. So, in order to unlock greater growth, we have to unleash the true potential of the MSME segment.

Today, the Indian MSMEs are benefitted by an array of schemes linked with their Udyog Aadhaar Memorandum, a 12-digit Aadhaar number for business enterprises. It provides them easier access to loans and subsidies depending on the market vertical that they cater to. The government, moreover, grants additional rebates and concessions to businesses that manufacture goods with export-level quality under its ‘Zero Defect, Zero Effect’ scheme. India also promotes innovation within the segment through its own incubation scheme that finances 75-80 percent of a project’s cost that implements new designs, ideas, or products.

Taking this support infrastructure one step further, the government also extends MUDRA loans, ranging from Rs 50,000 to up to Rs 10 lakh, to non-farm, non-corporate small business entities through intermediaries such as banks, MFIs, and NBFCs.

NBFCs and banking institutions, on the other hand, have also been increasingly tying up with fintech-based platforms given that they provide greater agility in the lending processes through their unconventional approach. They leverage state-of-the-art technologies that effectively gauge the credit profile of an MSME loan applicant and give instant approvals while eliminating exhaustive paperwork and red-tapism that’s generally associated with financing. They use alternate data repositories and analyze a business across more than 500 parameters to offer a customized loan with the best available interest rate.

This development has helped in trickling down the merits of modern technologies, such as Artificial Intelligence and Big Data, to the MSME segment and has offered an alternate channel for sourcing finances, and thereby augmenting their market performance.

India, at present, is one of the fastest growing economies and has, in the recent past, displayed strong growth potential by making rigorous financial overhauls – demonetization per se – even when other major economies were experiencing a slowdown. But the nation’s true potential will only be unlocked when its veritable growth engine, i.e. the MSME segment, drives it towards a double-digit growth rate. With the intervention of the government and the fintech sector, it is precisely where the nation is headed, with the MSME segment in the driver’s seat.

Amit Sachdev is the Co-founder and CEO of CoinTribe, a leading online loan disbursement platform.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)


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