The MSME sector in India is one of many contradictions. On the one hand, it has access to the best technologies, but on the other, lack of technology keeps companies from reaching markets and achieving the scale they are capable of. While there are specialized agencies offering access to affordable finance, often, the lack of timely funding makes finance inaccessible and expensive.
Then there is competition from the large companies, who have better bargaining power, access to finance and the ability to scale. In short, India’s MSME sector is exciting but challenging; faced with several hurdles, yet vital to the economy.
Speaking on the learnings from the pandemic at the ET India Inc Boardroom, Animesh Saxena, President, FISME, Ashish Vaid, IMC Chamber of Commerce and Industry, Indian Merchants Chamber and Mahavir Pratap Sharma, Current Chair, TiE India Angels and Rajasthan Angels, said that the first six months were tough.
ET India Inc Boardroom, in partnership with TXN NXT powered by NPCI, brings together industry leaders, policy makers and economists to discuss and deliberate key sectors of the economy. Over the five-day conclave, experts will uncover trends and challenges in the BFSI, Retail, Manufacturing and MSMEs sectors, as well as the economy as a whole.
Ashish, who is also associated with the real estate sector, said, “The real estate sector was hit very hard. The workforce left for their hometowns and villages, there were no sales and the slump in the real estate sector also hit its over 250 ancillary industries.”
To this, Animesh added that the SME sector was already reeling from demonetisation and the implementation of the GST, and then came the pandemic. “SMEs already have thin margins, so payments got blocked, there were no means to support manpower and overheads, and after things started opening up, it was almost like starting from scratch.”
On what their learnings were from the pandemic, Mahavir said one should have a product line where essentials are part of the portfolio. He also said the pandemic highlighted the need for having leaner organization structures. Technology has an important role to play and lowering operational and product cost is important. There is also a good sense in economizing, he said.
Future of business
Some interesting patterns emerged during the pandemic, said Amod Malviya, Co-Founder & Engineer, Udaan. People shifted from physical wholesale markets to online marketplaces and wholesalers, while the trust in the neighbourhood kirana, or a mom-and-pop store, rose multifold. Online sales became more popular, but offline also gained popularity.
“The SME category is the most tech-savvy and entrepreneurial category,” he said.
Attesting to his point, Swati Bhargava, Co-Founder, CashKaro, said that while April was a low point in business because even if there was demand, there were supply-side issues, June saw a rebound in e-commerce. Starting with grocery, pantry, health and beauty to education, home, and electronic goods, demand only grew stronger.
There was a whole new demand set coming from Tier 3 to Tier 6 cities and there were many shoppers who wanted to shop online but were scared to use credit cards, and unsure of returns. Here, the neighbourhood shops took on an aggregator role, taking online orders from people. With this, e-commerce became accessible to everyone, and this trend is likely to continue going forward.
To this, Sandeep Komaravelly, Director of International, Shopify, added that when people shopped online, there was a clear change in preference for local businesses and brands.
Let’s talk money
The one thing that all businesses without exception need to set up, keep going, grow, and scale up its funding. While larger companies find it relatively easier to access finance from formal channels such as banks and NBFCs, the going for MSMEs is tough.
“MSME is an important segment for the country and access to finance is a challenge. While things have improved, there is a long way to go. Over the last decade NBFCs and microfinance institutions played a huge role here, and later fintech companies,” said Anup Agarwal, South Asia Equity Lead – FIG & Fintech, IFC.
Estimates peg the current debt requirement for MSMEs in the country at Rs 15 lakh crore to Rs 16 lakh crore.
There is rapid growth of the online ecosystem and India has made significant infrastructure investments which will yield results in the time to come. “The interesting thing about India is that digital lenders here are not competing against banks but working with them to reach more sections of the economy,” said Alok Mittal, Co-Founder and CEO, Indifi Technologies.
“Most MSMEs need capital, but the entire process from applying for a loan to disbursal is cumbersome. By the time an MSME’s loan gets approved, the cost has become a hindrance,” said Akash Gehani, Co-Founder, Instamojo.
He also said customized underwriting and specialized NBFCs that focus on specific sectors and lend accordingly will make a sea change for MSMEs.
(For front-line insights on Economy, Retail, MSMEs, Manufacturing and Banking & Finance tune in to ET India Inc Boardroom (www.etboardroom.com) from 22-26 February and hear from over 50 industry leaders.)
Watch all sessions of Day 3 (MSME)
