MSMEs are contributing significantly to the Indian Economy. Almost 90% of the industrial units of the country are SMEs which employ 40% of the work force. Therefore their growth is deeply connected with India’s growth story. So, the question arises what needs to be done to enable MSMEs growth and enhance their competitiveness.
Banks and other financial institutions supporting SMEs growth
Credit rating support for SMEs growth
- Banks have invested humongous amount of time and resources to develop systems to help the SMEs not only with finance but in all areas of operations such as manage risks, support in implementing collection and payment system, provide exposure to global market, prepare research papers to help the SMES to take better decisions.
- NBFCs and banks are forthcoming in offering credit to this segment which is promising double digit growth in the Fiscal 2019
- Banks prefer SMEs for extending credit as opposed to large corporates as
- Being sole lender, they have better visibility and control on the finances of the business
- Well collateralised model
- A granular approach of credit can be adopted
- Banks and other financial institutions are supplementing traditional financial analysis with advanced data analysis to obtain qualitative data about the business. This equips them to assess SMEs’ repayment ability, stress management capability , risks involved and more.
- Banks like Standard Chartered have set up a one stop platform for the SMES. This supports them in solving many of their growth problems. The services offered are:
- Connect with potential clients in India and overseas and network with their peers
- A marketplace for financing and banking services
- Provide all business services required by the SMEs like HR, training, legal, compliance and so on.
How is listing helping MSMEs?
- Credit rating agencies provide cluster analysis that can be used by the lending institutions along with credit rating reports for assessment of the SME
- Credit rating lays more emphasis on qualitative info of the SMES for rating them. This includes capability of the management to execute business plan, vision of the business , technology architecture, strengths of board members, feedback from suppliers and customers, governance including ability of promoters to bring in capital as and when required
- By giving credit rating, these agencies indirectly draw lenders to the MSMEs. Rating gives transparency and the opportunity for the promoters to benchmark themselves in the industry.
The way ahead for MSMEs
- Helps in securing better credit rating.
- Better access to formal source of funding with a rating approach.
- Banks prefer MSMEs that are listed with a credit rating rather than a new comer with no history.
- It is positive trend as it elevates the position of the business in the eyes of the customers, suppliers and the lenders.
The MSMEs have done well for themselves so far but to continue this journey they should invest innovate and integrate. They should invest in manpower and technology solutions, innovate by upgrading the product mix, change delivery platform, service level improvements, look for new markets and integrate with the global value chain.
A B Ravi of CNBC – TV18 had a detailed discussion on framing the right model and evaluating credit risk for the MSMEs with Manish Jain -MD and Head, Commercial Banking, India, Standard Chartered Bank, Krish Sitaraman – Senior Director , Crisil and Bharat Panchal, Senior Vice President & Head, Risk Management, National Payment Corporation of India.
Catch the full episode: https://www.youtube.com/watch?v=6W1P5G4PxXk
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