2018 Year of Financial Disruption for MSMEs

The year 2018 has been very action oriented for the MSME segment, many issues and developments happened around this sector especially with respect to credit & finance.

PNB Scam and later ILF&S nightmare proved to be extremely disruptive for the financial landscape of the country and MSMEs got influenced by these.

While acknowledging some of the positive development of 2018 from the perspective of MSMEs, R Nayaran Managing Director and founder of Power2SME said, “The year 2018 has been a mixed bag for MSMEs in India. For a sector that employs over 100 million people and contributes 28.77% to the nation's GDP, the proactive initiatives introduced by the Government are a step towards neutralizing the MSMEs’ extraneous suffering. While initiatives like the launch of MSME outreach program and amendments brought to the Insolvency and Bankruptcy Code (IBC) show the Government’s commitment towards resolving the issues that plague the sector, there still remains a lot of scope for establishing a seamless operating environment. After enduring the storm of GST and Demonetization, MSMEs in India continues to grapple with issues of delayed payments, raw material procurement and lack of access to formal credit. Out of the total 63.3 million MSMEs in the country, less than 5 million have access to formal credit and struggle to raise finance for even working capital requirement.”

“Hence, it is imperative to introduce amendments that would classify Non-Banking Financial Loans to the MSME Sector under Priority Sector Lending (PSL) and prevent them from turning into non- performing assets (NPAs). The aggregate funding requirement for MSME sector was pegged at 45 lakh crore rupees in 2018 and the demand, supply gap remains huge. The need of the hour is to create a structured, competitive, and dedicated lending window for MSME sector so that the small setups do not suffer for lack of credit. As 2019 dawns upon us, the performance of India’s MSME sector will be critical in molding the growth trajectory of the Indian economy and we should collectively move ahead on the path that has the potential to transform India into the next manufacturing hub,” Narayan further mentioned.

However, the manufacturing segment in India has shown the mixed type of performance in 2018. Moreover, job creation which is an acknowledged challenge ahead of the country can only be dealt with successfully if MSMEs are enabled. And, MSMEs’ enablement means credit availability at an affordable proposition for MSMEs.