The Anatomy of the Credit Gap
The SIDBI report highlights that this credit gap is not uniform but is particularly severe in specific sub-segments:
Service-oriented enterprises
Women-owned businesses
Garment manufacturing
Grocery retail
Food processing
IT/ITeS sectors
These businesses face disproportionately higher challenges in accessing formal credit. Despite 90% of surveyed MSMEs using digital payments, only 18% have adopted digital lending options, indicating a significant untapped opportunity in fintech-driven financing.
The Reliance on Traditional and Informal Channels
Data from FICCI’s 2023 SME report further enriches this narrative. A survey of 610 enterprises found:
Bank loans are the primary source of funding for 85.4% of SMEs, accounting for 58% of their total financing.
Self-funding is used by 50.5% of enterprises.
NBFCs and informal lenders are relied upon by 30% and 25.9% of SMEs respectively.
Critically, micro-enterprises rely on informal sources for 12% of their funding—much higher than small (3%) and medium enterprises (2%). This indicates that the smallest businesses, which are also often the most vulnerable, are the least served by institutional finance.
Structural Barriers: Why MSMEs Stay Unbanked
Two major systemic challenges underpin this gap:
1. Lack of Formalization:
About 35% of MSMEs remain unregistered, largely due to a lack of awareness or fear of regulatory scrutiny. Without formal status, access to bank credit is virtually impossible.
2. Mismatch in Credit Assessment Norms:
There is a significant misalignment between MSME business cycles and the regulatory framework. The RBI’s 90-day NPA (Non-Performing Asset) rule for classifying bad loans does not reflect the working capital cycle of many MSMEs, which often exceeds 90 days—from procurement to sales realization. This mismatch forces MSMEs to prematurely divert operating capital toward loan repayment, hurting daily operations.
Proposed Solutions: Complementary but Critical
Both SIDBI and FICCI outline actionable recommendations to close this massive funding gap:
Sector-Specific Interventions:
SIDBI emphasizes tailored policies for high-impact but high-risk sectors like women-led enterprises, garments, and IT services.
Promoting Digital Lending:
Fintech platforms, if leveraged properly, could drastically improve access to credit for underserved segments. SIDBI sees this as a game-changer, given the digital payment maturity but low adoption of digital loans.
Extending NPA Classification Period:
FICCI recommends extending the NPA recognition period from 90 to 180 days, aligning better with real MSME cash flow cycles.
Encouraging Cash-Flow-Based Lending:
A shift from collateral-based to cash-flow-based credit models can benefit newer or asset-light businesses.
A Call for Multi-Stakeholder Action
Bridging this ₹30 lakh crore gap is not the responsibility of banks alone. It requires a coordinated approach involving:
Government: Reforms in NPA guidelines, simplified compliance for registration, incentives for digital adoption.
Financial Institutions: Flexibility in lending models, onboarding of first-time borrowers, and better risk assessment frameworks.
Industry Bodies: Awareness drives, digital financial literacy, and handholding of informal businesses into formal ecosystems.
Technology Providers: AI-driven risk modeling, alternative credit scoring based on transaction history, and real-time data integration to support MSME underwriting.
From Gap to Growth
India’s journey to becoming a $5 trillion economy cannot bypass the MSME sector. Addressing the credit gap is no longer a matter of policy deliberation—it’s a structural imperative. SIDBI and FICCI’s insights pave the way for bold, tech-enabled, and inclusive financial interventions. What’s needed now is execution, collaboration, and a relentless focus on translating intent into access—for every entrepreneur, no matter how small.
Source : Blog based on the content and insights from the SIDBI and FICCI reports
No comments:
Post a Comment