The second wave of Covid-19 threw light on the vulnerabilities in the SME sector like never before. Delayed payments, high informality and low financial resilience were exposed through the pandemic.
The Micro, Small and Medium Enterprises (MSMEs) account for 45% of manufacturing output, more than 40% of exports, 28% of GDP. It also employs about 111 million people in India and is called the backbone of Indian economy.
The sector has been riddled with several challenges in the past but the Covid led lockdowns has left it in shambles. The second wave of the pandemic further exposed vulnerabilities and cracks like never before. Delayed payments, high informality and low financial resilience were exposed through the pandemic.
At an event organized by the Global Alliance for Mass Entrepreneurship (GAME) experts from various fields discussed the issues ailing MSMEs and the way forward. The panelists highlighted that at least Rs 15 lakh crore was stuck in payments to MSMEs each year with payments typically made in three to six months in contravention of the MSMED Act. They emphasised on the need of on-time payments particularly during the ongoing pandemic.
“These are hard times for MSMEs and large corporate houses who work with these firms can help in several ways. One of them can be supporting invoice discounting on TReDS. This allows them to retain flexibility with their cash flow while ensuring immediate liquidity to MSMEs,” said Brajesh Palsaniya, Head – Treasury,Raymondin a statement.
With repeated lockdowns, revenue generation has witnessed a fall. There are financial challenges faced by those new to credit and women-led enterprises. The panelists recommended supply chain financing that can offer MSMEs credit while encouraging them to formalise their businesses.
The panelists recommended market driven solutions such as mainstreaming receivables discounting especially through the ‘soon to be tabled’ amendment bill and supply chain financing solutions that incentive large buyers to initiate supply chain financing for their MSME suppliers.
In a statement, Nirav Choksi, CEO & Co-Founder, CredAble said, “We are seeing an increased interest from corporates to unlock credit for MSME suppliers. These are challenging times for the sector and mechanisms to increase credit flow to MSMEs are needed. We like many fintech players are innovating around alternate data for credit assessment especially leveraging the power of invoices and tally data.”