In the growth story of India, MSMEs are the protagonists. To understand the need for investing in MSMEs, it’s important to understand their contribution to the Indian economy. Believe it or not, collectively, Micro Small and Medium Enterprises (MSMEs) are the 2nd largest employers in India, coming in right behind the agrarian sector.
According to the 2015-16 MSME Annual Report, micro and small enterprises have a 45% contribution in manufacturing output, 40% in export, and a whopping 37% contribution to the National GDP.
These numbers are nothing to scoff at. Traditionally, micro and small enterprises have been brushed off by large banking institutions because of the myriad issues surrounding risk and credit worthiness of the borrowers.
Availability of Credit history and repayment tracks are not up to snuff; small store owners have loosely defined documentation of daily business transactions; cash flow cycles might be highly dependent upon seasonality; for large banking institutions, none of these parameters are healthy enough to warrant a second look.
Despite the perceived high risks for defaulting payments, we believe MSMEs deserve a closer look into their working to help fortify their infrastructures and strengthen their capabilities. Perhaps the most compelling reason to fund their growth is that MSMEs provide employment to approximately 42 million skilled and unskilled workers.
Whether it is manufacturing at a cluster level or the corner neighbourhood grocery store (with free home delivery!), or even a local eatery/confectionary, MSMEs are intrepid businesses and part of a dynamic economy.
Working Together for MSME Growth
The growth of MSMEs is quite literally the growth of our nation. Although their growth has been stunted so far, the rise of new NBFCs and Fintech companies, ready to service the missing middle, brings welcome relief. These are organizations – very much like Aye Finance – who approach an MSME borrower’s request holistically.
At Aye, for instance, we have brought several innovative approaches to MSME lending:
- Customized assessments of borrower needs leading to increase in customer acquisition and customer retention
- Industry specific credit appraisal techniques that go beyond conventional methodologies
- Deep integration of technology to focus on low cost delivery for servicing small ticket size loans
- Psychometric and behavioural evaluations
- Segmentation of the MSME market into industry-based clusters
All these steps are taken to combat the inherently fragmented, heterogeneous nature of the MSME landscape.
On the policy side, the Indian government has been incentivizing indigenous production through campaigns like Make in India, to promote the segment which has nearly 58 million enterprises and provides 150 million jobs across India.
Earlier the champions of MSME ecosystems have often wondered whether releasing the chokehold of prohibitive policies and proper financing would lead to guaranteed growth. Having worked with thousands of small business owners who have not only graduated to higher loan payouts from us, past lending behaviour notwithstanding, but have also witnessed growth in business after utilizing the loan. We are witnessing the evolving MSME landscape. And now with supporting policies, we may finally witness the truth of the hypothesis.
By and by, with government support and willing NBFCs providing specialized financial services, the MSME environment is now quite possibly one of the most exciting space to be around. Experts are pinning double-digit contributions to India’s revenue, which means we’re looking forward to a fruitful journey ahead!