By Robin Bhowmik
With more than 120 million working in the industry, MSMEs are responsible for a huge portion of employment and entrepreneurship in India. Their contribution makes up 30% of the nation’s GDP and 40% of its exports. Despite these exciting digits and percentages, the MSME sector faces major financial challenges at present. Reportedly, as of 2023, the credit cap for the industry was estimated at $380 billion. A prime cause for this hindrance is MSMEs’ lack of accurate knowledge and adequate awareness of the technology and the finance front. As digital financing and banking services take the lead, MSMEs have yet to realise and fully adopt the new systems.
The solution can be described in simple words: the MSME sector needs to upskill and successfully leverage the available financial products and services, taking advantage of the impressively developing BFSI sector. The execution of the same may not be that simple. It will be a two-part action plan involving understanding the skill gaps and then bridging them precisely.
The Impact of the Skills Gap on Financial Inclusion of MSMEs
Financing is a crucial operating power for businesses of any size. While banks, NBFCs, digital banks, and fintech companies, in collaboration with mobile banking and online financing, make borrowing easier than ever, MSMEs still struggle for credit. The key reasons are the absence of a strong credit history, poor collateral, inadequate awareness about government schemes, and high interest rates. That’s not all!
Digital literacy has been crucial to financial inclusion. If a borrower from the MSME sector does not have a strong digital footprint and does not have the ability to adapt to digital methods, he or she might not be as visible to the banks as tech-savvy applicants.
Without a sturdy hold on digital systems and an understanding of how they work, any entity will lose the easily available access to digital data that allows better and quicker credit risk assessment.
Key to Access Financial Services and Improve Financial Management
Digital technology is not just an available option anymore; in 2024, it has become a necessity. It improves businesses’ productivity and efficiency while consequently enhancing customer experience.
Technical Upskilling
Not just a basic understanding, the MSMEs will need thorough knowledge and the ability to anchor modern-age technologies like robotics, AI, AR/VR, IoT, blockchain and cloud technology.
The workforce is the running power of a business. If it is not skilled enough to produce products and services suitable for the modern needs of the customer, the business loses its position. Banks and other lenders will not view it in a positive light. Hence, as the sector gears up for technological growth, MSME entrepreneurs and employees must receive adequate training in the new systems and methods. While hiring new employees, tech skills should be highly prioritised. For existing employees, targeted professional training sessions should be arranged.
Financial Upskilling
MSME entrepreneurs need certain financial skills for self-evaluation and making well-thought-out credit applications. Banks’ credit appraisal norms, capital cycle, cash flow budgeting, turnover method, balance sheet, profit & loss statement, ratio analysis, risk management, underwriting, and rating-based fundraising are to name some.
Need of Efforts and Collaboration from Government Bodies, Industry Players, and Education Institutes
Upskilling efforts from MSME should be met and empowered with initiatives from various government and non-government organisations. The Indian government already has several schemes for financial assistance (for example the PMMY scheme and the CGTMSE scheme) and skill development programmes.
Private sector initiatives have also been influential. The emergence of many online lending platforms has created alternative credit sources. These platforms offer credit with a streamlined application process and low credit scores. Partnerships between government and private entities have further contributed to MSMEs’ development.
Technological evolution has long entered the education system. Considering the rapid innovations and the age of digital technology, many educational institutions all over India have included targeted programmes and courses for aspiring students. The pace must continue, and entrepreneurs and students looking to enter the MSME sector should have access to adequate education and training.
Upskilling and reskilling should be the mantra for MSMEs going forward. New systems and methods will continue to enter the world. The only way to survive in the ever-changing technical and financial worlds is to keep evolving and adapting. As MSMEs feature a strong technical structure, a robust grip on digitalisation, and accurate financial skills, banks will be more confident in lending. Bridging the gap of so many billions will require time and constant efforts from all.
Robin Bhowmik is the Chief Business Officer at Manipal Academy of BFSI. Views are personal.
