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ETRise Top MSMEs Ranking: Need a data rich India to jumpstart MSMEs financial inclusion

At the recent discussion about the state of MSMEs in the country, experts believed that the SME community is so entangled that they believe one another easily, which eventually discourages them to take steps towards formalisation.

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Last Updated: Feb 01, 2020, 08.45 AM IST
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Ram NK, Director, Rang De, believed that despite many "well meaning schemes" from the Government, most MSMEs lack the digital footprint and are not able to join the financial bandwagon.

Despite many significant reforms, India still is not just a poor country, but a data poor nation, which is aggravating the funding woes for MSMEs.

At the recent ETRise Dialogues held in Bengaluru, panel members were of the view that paucity of data on a borrower was severely impacting a lender's decision to provide credit.

According to Ram NK, Co-Founder and Director, Rang De, a crowdfunding platform for rural entrepreneurs, despite many "well meaning schemes" from the Government, a large number of MSMEs lack the digital footprint and are not able to join the financial bandwagon.

Flagging the limitation of the existing mechanism under which the country’s Credit Bureau functions, he said, “The Credit Bureau has its own limitation. If you have borrowed previously, then only it will show any record. Hence, currently, it is only for borrowers with rich credit history. If you borrow informally, then also, no data can be recorded therein.”

Ram further pointed towards the evolving concept of Account Aggregators (AAs). He was of the view that the novel idea being pushed by the Government is a much needed step that can help ease liquidity crunch faced by the MSMEs, especially those that traditionally borrowed only via informal sources.

“With Account Aggregators, even if entrepreneurs have zero credit history, they can seek funding. Leveraging such a model, a cash flow-based lending is set to offer a great opportunity for lenders and entrepreneurs alike,” says Ram. According to him, the lender will get a better picture about every borrower basis, which the financial institutions will be able to decide the parameter and the rate at which it would be able to lend - all this in real time.

Echoing similar views, Sampad Swain, Co-founder and CEO, Instamojo, emphasised that more than 90% of people are not listed under the Credit Bureau data, which makes lending to MSMEs extremely difficult.

MSMEs jittery of formal lending
On the occasion, Amit Kumar, founder & CEO, MSMEx, a micro advisory platform, talked about an unsubstantiated "fear factor" pertaining to formal sources of lending, prevalent among MSMEs. He said there exists a significant number of MSMEs who, just on the basis of word of mouth, have increasingly turned jittery of the formal sources of finance. “There are MSME firms that have never ever seen the door of a bank. Such firms just believe that they will never be able to secure a loan because someone told them so,” Kumar highlighted.

Adding to such firms' woes, according to Kumar, the community of MSME is so entangled that they believe one another easily, which eventually discourages bids towards formalisation. “We advise MSMEs to take regular funding from formal sources, even if they might not be requiring a particular amount at any given point in time. We do so to help them create a digital footprint, which greatly helps in raising funds in the long run. What if tomorrow, you needed an X amount, but you have no financial footprint,” he questioned.

ETRISE Dialogues has Union Bank of India as the Presenting Partner, MIDC, Caspian Debt and Cogoport as the Associate Sponsors and CARE Ratings as the Assessment Partner. KASSIA was the Associate Partner for the Bengaluru session.

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ET Edit: MSMEs in need of immediate succour

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