SMALL IS BEAUTIFUL. Take India's micro, small, and medium-sized enterprises (MSMEs) for instance. They play a crucial role in India's economic growth, often attributed to large conglomerates and corporations. These MSMEs currently more than 60 million are the crucial backbone of the Indian economy, generating thousands of jobs, fostering innovation and entrepreneurship, and contributing nearly 45% to India's exports and 30% to the gross domestic product (GDP).
Despite playing a pivotal role in the country's development, these firms encounter immense challenges in securing the capital required for their expansion. They often struggle to obtain loans from traditional banking institutions, which are known for their lengthy approval processes, high collateral requirements, and stringent criteria. As of April 19, 2024, the MSME sector had received ₹10.4 lakh crore in credit from banks, compared to the ₹9.07 lakh crore a year ago (April 21, 2023), a jump of 15%, data from the Reserve Bank of India (RBI) shows.
Even though MSMEs are getting more financial assistance than earlier, formal credit is available to a mere 14%of MSMEs in India. Capital is essential for the growth of any business: Starting from micro-enterprises with an annual turnover below ₹5 crore, to small with an annual turnover of less than ₹50 crore, and then medium with an annual turnover of less than ₹250 crore. But, the problem is complicated since they are spread across sectors.
"When we think about MSMEs, most of us like to think about MSMEs in some industrial corridor or view them primarily as manufacturing entities. In reality, most are typical grocery shops," says Ram Iyer, Founder and CEO of supply-chain financing company Vayana. "Only 30% of MSMEs in the country are involved in manufacturing, while the rest are in trading or other businesses, mostly engaged in buying and selling," he adds.
This story is from the July 21, 2024 edition of Business Today India.
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This story is from the July 21, 2024 edition of Business Today India.
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