How small businesses can survive the coronavirus crisis

Small businesses can try and overcome the financial crisis by taking advantage of government initiatives, digitising services to enhance customer experience, and being prepared for reduced sales and managing cash flow.
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One of the worst affected sectors of the Indian economy due to the COVID-19 pandemic has been the MSME (Micro, Small and Medium Enterprises) sector.

Over 63 million MSME units operate in India, accounting for nearly one-quarter of India’s $2.9 trillion economy, and employing more than 500 million workers. These small businesses form the backbone of the Indian economy, contributing 29.7 percent of the GDP and 49.66 percent of the total Indian exports.

Many of these small businesses are now in the midst of an unprecedented financial crisis. The country-wide lockdown, extended till May 31, 2020, due to the continuing rise in infected cases, has led to the closure of thousands of factories and shops. These cash-starved enterprises do not have adequate money to pay rent, electricity bills, bank loans, and, most importantly, wages to employees.

As a result, an excess of 5 million people could be facing unemployment. It is estimated that 2.5-3 million people might lose jobs only in the apparel export sector, where MSMEs account for 70 percent of the business.

The handicraft sector might see estimated job losses of two million. India’s unemployment rate already crossed 23 percent in March 2020, and will keep increasing if the MSME sector is not taken care of.

Keeping the above concerns in mind, here are some ways in which small businesses can try and overcome the financial crisis which they are facing.

Take advantage of government stimulus initiatives

The Indian government is taking steps to keep the segment afloat. On March 27, 2020, the RBI introduced the Targeted Long Term Repo Operations (TLTROs) as a tool to enhance liquidity in the system. LTRO worth ₹100,000 crore has been introduced to help banks increase lending at cheaper rates. The RBI has also included a six-month loan moratorium for all term loans from March to August 2020.

The last date for filing IT returns for FY 2019-20 has been extended to November 30, 2020. The deadline for GST returns filing for March-May has also been extended to June 30, 2020.

In her recent announcement, Finance Minister Nirmala Sitharaman also approved funding of Rs 3 trillion at capped interest rates and without collateral obligations through the Emergency Credit Line Guarantee Scheme for MSMEs struggling due to the coronavirus crisis.

The revised definition of MSMEs, along with the liquidity measures announced, will allow the sector to grow and achieve scale. The schemes not only offer substantial relief, but also compel SMEs to digitise their operations and business practices through e-market facilities.

Create co-op unions to operate in challenging times

Historically, in periods of crisis, policies and products developed by financial co-operative unions (credit unions) have been able to help people advance. For example, on March 16, 2020, the Desjardins Group, the largest federation of credit unions in North America, announced a series of relief measures for clients through the COVID-19 crisis as they were having difficulty paying back loans.

Credit unions also have more personalised financial solutions, lower fees, and faster services in comparison to dealing with big banks. A similar model can be adopted in India to inject immediate liquidity into the market to kick-start MSME operations.

Digitisation of services and improving customer experience

Lockdowns across the world have forced companies, big and small, to take the digital route. Small companies now need to consider providing online services to customers, right from onboarding to payment. The buying process can be made easier through apps, chat bots, and WhatsApp messages.

This will be the first time that many customers will be pushed to interact with brands online. Even if the process is purely transactional, SMEs can take advantage of this situation. Through video calls and social media messages, companies need to engage customers and take their feedback.

It is also vital to keep them informed regarding the changes in business structure or working hours due to the lockdown.

Tackling the decline in purchasing power of consumers

Consumers are not expected to come flocking back to businesses as soon as the lockdown is lifted. Firstly, the fear of the virus spreading will continue in our minds for some time. Most companies will continue with their work from home approach, relying on remote technologies for operations.

However, the biggest concern is that many citizens are out of employment now, many others are facing drastic salary cuts, and many have been asked to take unpaid leaves of absence.

Therefore, businesses need to be prepared for reduced sales and manage their cash flows accordingly.

Businesses can also look at alternative options such as checkout finance to make purchases affordable for consumers by quickly converting the total cost of purchase into small, affordable instalments.

Solutions like no-cost EMIs for high-ticket items will encourage buyers to purchase need-based items such as air conditioners.

Supporting the MSME sector is crucial for reviving the local and national economy. One such avenue of support can come from new-age fintech lenders, who have the technological prowess to serve new-to-credit segments and geographically untapped clusters, and provide them the financial support they require during these testing times.



Fintech lenders understand a sector’s model of functioning and design products to meet the specific needs of the sector. These lenders will play a crucial role to bring the Indian economy back on its feet.

Edited by Megha Reddy

(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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