Finclusion to 'Swavalamban': The road ahead for MSMEs

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Covid-19 has changed the course of millions of Micro Small & Medium Enterprises (MSMEs), which are under severe economic distress due to this unprecedented pandemic and the consequent prolonged lockdown. As such, the survival rate of most MSMEs in India is a big question mark. Against this backdrop, let us discuss how entrepreneurs in the MSME sector can see the light at the end of the tunnel.

As per NSSO data, India has 63.4 million MSMEs providing employment to around 111 million people. So a majority of the MSMEs are ofone man and/or one woman shows’. Out of these, 31 per cent are involved in manufacturing, 36 percent in trade and 33 percent in services. While 49 per cent of MSMEs are located in urban areas, 51 per cent are in rural India.

It is well recognised that MSMEs significantly contribute to gross domestic product, jobs and exports of India. However, to maintain their competitive advantage, they have to upgrade themselves constantly to counter challenges of technological obsolescence, changes in customers’ demands/ expectations, market linkages, skilled manpower, government policy, etc. Access to finance is a major issue, hindering growth of these enterprises.

To resolve this issue, Reserve Bank of India (RBI) issued licenses to Small Finance Banks in 2015 with a view to channelising finance to MSMEs and achieving 100 percent financial inclusion. With a view to extending additional financial support to the MSMEs during Covid-19 period, the Government of India recently announced Rs 3 lakh crore package to this sector. As most of the MSMEs have nil/negligible cash flows during the last quarter, they will be given emergency credit line (up to a maximum of 20 percent of their entire outstanding loan up to Rs. 25 crore as on February 29, 2020 subject to certain conditions) by banks and financial institutions to tide over their working capital crisis.

Under the Digidhan Mission, almost all transactions of the Ministry of MSMEs and its field offices have been digitised so as to provide seamless electronic payments (96 percent in terms of value as of March, 2019) to the small entrepreneurs in an easy, quick and secure manner. Besides, the proposed cluster-based approach and scheme for formalisation of micro food enterprises by the government are expected to create sustainable rural livelihoods, build synergies for the small scale entrepreneurs in food processing industry and leverage on consumption driven/self-reliant Indian economy.

Prime Minister Narendra Modi, in his Mann Ki Baat address on April 29, 2018, cited poverty alleviation efforts of the Integrated Livelihood Support Project (ILSP). Under the 'Hilans' brand, the ILSP initiated online marketing of rural produce through Facebook, YouTube, Twitter, Amazon, Flipkart, BigBasket etc., enhancing income of rural households in Uttarakhand.

Many of the entrepreneurs are nurtured by mentoring organisations like Bharatiya Yuva Shakti Trust of Tata group, BAIF Development Research Foundation, and Odisha Skill Development Authority and are credit-linked to banks at low interest cost. By collaborating with industry, the Ministry of MSMEs signed Memoranda of Understanding with Samsung Electronics India and SAP India for skilling of youth in order to foster entrepreneurship and generate employment opportunities in electronics sector.

Interestingly, Rado and Omega watches, internationally well-known brands, are being manufactured by micro and small enterprises in the rural hinterland of Switzerland. South Korea implemented cluster-based village development model by promoting micro and small enterprises, thereby improving the livelihoods of the rural populace. As ancillary units, MSMEs also play a complementary role to large enterprises and contribute significantly for the inclusive industrial development of the country.

Back home, some of the Self Help Group (SHG) members from Andhra Pradesh are selling popular Kondapalli toys and Kakinada kajas (sweets) through online portals such as Amazon and Flipkart. It is also observed that several SHG women from the weaving community in Nalgonda and Suryapet districts of Telangana, enhanced their income through sale of ‘Pochampally (Ikkat)’ saris, dress materials and furnishings. While some SHG members work on ‘piece rate contract’ and market their products through the master weaver/designer/trader, some others produce and sell the saris on their own through Mahila E-HAAT.

These small entrepreneurs recorded good business turnover since they are selling traditional saris. Notably, they received low cost, affordable, adequate and timely institutional credit from banks as well as from Stree Nidhi Credit Co-operative Federation Limited, a community owned and managed financial institution based in Andhra Pradesh and Telangana.

Micro and small enterprises are essential vehicles in achieving financial inclusion (Finclusion) by creating sustainable livelihoods for the bottom of the pyramid. Today’s global companies such as Amazon, Apple, Facebook, Google, Microsoft, Netflix, Tesla, and Uber were started as micro enterprises by youngsters in college or out of their parents’ garages. Hence, small entrepreneurs should be given adequate hand-holding support to dispel ‘fear of failure’ among them. MSMEs can transcend to the next level i.e., Finclusion to Swavalamban (self-reliance) in due course through proper inputs in terms of skilling, technology and market linkages. Essentially, access to affordable and timely credit to MSMEs will fulfil the dreams of entrepreneurs in this journey.

The writer is Associate Professor & Head, Centre for Entrepreneurship Development & Financial Inclusion (CEDFI), National Institute of Rural Development and Panchayati Raj, Hyderabad

The thoughts and opinions shared here are of the author.