Recently, we saw a news footage of an entrepreneur from somewhere in Uttrakhand and he was literally crying in front of the top officials of the state. He was struggling with bad debts from the bank. This incident took me to a shock and urged me to write my observations around what all is happening and what is going wrong. On the contrary, we have 11 thousand Crore PNB-scam that is making headlines in all newspapers since last two days.
While MSMEs in India is considered as the engine of growth, this engine requires a thorough servicing. Like, we all take good care of our car engines in order to ensure the car runs smoothly, MSMEs also need attention.
With this attention for MSME includes pampering and support.
Banking and Finance is an area which requires a lot actions towards ensuring motivation for entrepreneurs. Before we say, MSMEs are the engines of growth, our policymakers must ensure smooth flow of capital within this sector. The flow of capital at an affordable cost which is viable for business.
In addition to this, in our banking system, the understanding of MSME business is relatively low. But, almost every bank is promoting itself as an MSME friendly bank, and ironically when we interact with any MSME, they have one or the other complaint from their respective banks. For example, the increase of OD facility, too much documentation for a business loan, time consumed in loan disbursement etc.
One more thing, these issues are existing for Micro and small category entrepreneurs, who are contributing to the core in creating jobs, employment generation etc. but if we look at large ticket sized borrowers, we have examples like PNB – Nirav Modi, Vijay Mallya.
The system should create a demarcation between the large ticket-sized borrowers and relatively low ticket sized borrowers. Obviously, banks deal with public money. They have to remain vigilant and can’t ignore the history of MSME bad loans. So, can there be a middle path?
I guess, more than PSU banks, the new age NBFCs are doing very good in the MSME lending. This sector is relatively doing great work as they have the absolutely localized approach to lending. They prefer to know the borrower and understand their need. Rather than following a standard documentation procedure.
We can also leverage the social fabric of the country in understanding borrowers. Big data offers such level of screening which can allow someone to segregate the shady and genuine.
We must also accept the fact, India is also a country of people with no structured credit history. But this factor is changing and there is a rapid change in this direction. And, interestingly, India is also the top country in the whole world which is surging ahead in the category of first generation entrepreneurs.
So, there are several issues and many loopholes which need to get fixed. The biggest advantage of being in India is the fact that last few years, govt. policies MSMEs, Startups are getting discussed as the main stream. Decisions such as Demonetization and GST implementations are a good example of this good thinking gesture. Execution is stumbling block according to some, but considering the size of the country and temperament of the people, the initial level teething problems were bound to happen.
Till the time complete recovery happens, although some signs have started showing off, entrepreneurs must have to strive hard for excellence. And for the policymakers, they must and should emphasize on MSME perspective at least when there is a scope of tweaking the financial system.
I am sure that policymakers are worried about both incidents, the PNB scam as well as the entrepreneur’s tears in front of TV cameras.