MSMEs play a significant role in most economies, particularly in developing nations, contributing 60% of the total employment and 40% of the national income. Lack of access to formal credit has prevented MSMEs from reaching their full potential despite exclusive legislation and policies. The fragmented and opaque nature of the MSME information that is accessible presents significant underwriting difficulties for lenders. The goal of this policy brief is to better facilitate the use of alternative data in the MSME financing landscape by offering a policy framework for creating databases.
Despite challenging domestic and international economic conditions, the MSME sector in India continues to show amazing resilience. The MSME sector will continue to support the economy in India and other countries around the world. However, the lengthy loan processing times discourage businesses from taking out formal sector loans to meet their credit needs. Furthermore, because MSME credit information is so opaque, lending institutions view MSME lending as a high-cost, high-risk endeavour.
The majority of the businesses registered under the MSME Act of 2006 are involved in the manufacture, processing, and preservation of goods and commodities. Along with contributing to economic growth, MSMEs are essential for creating jobs in a variety of sectors.
In fact, it is the sole industry that collaborates closely with the government to promote the nation’s rural and underdeveloped regions. Despite the fact that MSMEs are accorded numerous unique financial and developmental benefits, it appears that these benefits are insufficient to improve the standing and productivity of this industry.
To bring MSMEs in India into the organic competition, much more needs to be done. Despite the positive news, a number of obstacles keep this industry from reaching its full potential. Due to a lack of funding, managerial, entrepreneurial, and marketing skills, inconsistencies in the availability of skilled labour, and labour law compliance issues, MSMEs are falling behind. The growth of this industry is also being constrained by limited access to IT education, knowledge, and information.
MSMEs these days are being encouraged to market their products on the e-commerce site, especially through Government e-Marketplace (GeM), owned and run by the government, wherefrom Ministries and PSUs (public sector undertakings) source their procurement. As of March 24, 2022, the GeM portal has served 9.63 million orders worth Rs. 219,071 crore (US$ 28.70 billion) from 4 million registered sellers and service providers for 59,259 buyer organizations. Indian Micro, Small and Medium Enterprises (MSMEs) are rapidly adopting digital payments over cash, with 72% payments done through the digital mode compared with 28% cash transactions. Rise in digital adoption presents prospects for further growth in the sector.
