An Opinion on how NBFC lending platforms are boon for MSMEs in small townsMohit Sahney
Far away from the glitzy world of Startups making the media headlines, there exist the MSME sector, quietly making its significant contribution in the growth and development of India. Despite being snubbed by formal financial institutions and banks, and in a clear absence of skyrocketing funding, the resilient sector has held on to its accord and yet, found a way to contribute in nation’s progress. Claiming 8% of share in country’s GDP, the Micro, Small and Medium Level enterprises are credited for 45% of the manufacturing output, whilst contributing 40% in Indian exports. And yet, the sector is facing a credit deficit of INR 5 trillion.
Dearth of Financial Assistance for Indian MSMEs
The MSME sector has never been an ideal market for the formal banking and financial institutions. Given the lower size of loans and longer tenures, they don’t offer fancy earnings. Besides, any organization would have to endure huge costs to reach out to this sector, scattered away from the urbane terrain, lacking the required digital or technical infrastructure.
Furthermore, the little available financial assistance is still restricted to comparatively larger scaled MSMEs, with proper and faultless documentation. Otherwise, these small and medium scaled enterprises cannot even opt for unsecured loans, since any Financial Company would fundamentally wish to have the funds secured against an asset or a mortgage.
In the view of the same, certain NBFC lending platforms have emerged in past half a decade, endeavouring to address the woes of the MSME sector while accessing credit. As the only available effective, systematic source of credit, NBFC lending platforms are really a boon for MSME's in small towns.
While banks fail to understand the nuances of these small players, NBFC lending platforms are better attuned towards their requisites, owing to the last-mile connect. Furthermore, these NBFCs are assisting MSMEs with formal bookkeeping and business management, in order to make the sector reach its full bloom and prosper. However, the efforts cannot stand in isolation for long.
NBFCs warrant Government Action
There is no denying the fact that if served well, these MSME's can do wonders for Indian economy. As the panacea to all ills, MSMEs alone can cease population migration from small town to metropolitan cities. By curbing the same, as an economy, we will be able to keep a tab on the uneven growth, while as a society, fight the social hazards linked to increasing urban migration. Currently employing over 6 crores individuals, the employment statistics by Indian MSMEs are second only to the agricultural sector.
While the contributions of the MSME sector have been recognized all across the nation, the sector still requires institutional and organized assistance from the government bodies. As of yet, the loan disbursal facility is limited only to NBFCs with a larger scale of operation, whereas despite the last-mile connect, smaller NBFCs find it challenging to raise loans, even from MUDRA and PSU Banks. Tackling the challenges of accessing loans for disbursal, smaller NBFCs often have to accrue more costs. The same results in an inflated cost the micro, small and mid-level enterprises.
The government can enable the growth of this sector by beginning to provide incentives to NBFCs catering to the MSME sector, a move similar to the affordable housing scheme. In addition, the government needs to ensure that the credit facility is extended to NBFC lending platforms by MUDRA bank and other institutions, whilst giving an interest subsidy to the MSMEs. These moves, when implemented by the government, will ensure that the right credit facility reaches out to the right enterprises, in a way that is cost-effective, quick and efficient.
While the MSMEs may be the beacons of growth and development in the rural sector, together, the government bodies and the NBFC lending platforms need to fuel its flames.