"Empowering MSMEs Amidst Delayed Payment Challenges"

Financial institutions play a crucial role in addressing delayed payments by offering credit solutions like working capital loans, invoice financing, and trade finance services. Examples include invoice financing programs and digital platforms for supply chain finance.

In an exclusive conversation with Faiz Askari, Founder Editor of SMEStreet, Ketul Acharya, President of GAME (Global Alliance for Mass Entrepreneurship), emphasizes the critical role of Micro, Small, and Medium Enterprises (MSMEs) in India's economic growth, particularly in achieving the goal of a $5 trillion economy by 2028. GAME implements programs like NBFC Growth Accelerator Program (NGAP) and Growtherator to uplift India's MSME and entrepreneurship ecosystem. 

"India's potential as a global entrepreneurship hub lies in its large market, expanding middle class, digital transformation, government initiatives like Startup India, and a thriving startup ecosystem. Initiatives by institutions like SIDBI and NSIC, along with educational institutions fostering entrepreneurship education, further enhance this potential," discussed Mr Acharya. Here is an edited excerpt of the interview. 

On 5 Trillion Dollar Economy Chase

Faiz Askari: As India aims to become a $5 trillion economy by 2028, why is it particularly crucial at this time to expand support to the MSME sector? 

Ketul Acharya: The contribution of Micro, Small, and Medium Enterprises (MSMEs) is unparalleled in the country's economic landscape. Often hailed as India’s growth engine, making it the largest source of employment after agriculture. Thus, the sector must continue its growth trajectory which is in line with the government’s vision of a 50% GDP contribution from MSMEs and SMEs by 2030.

These enterprises serve as significant employers, fostering job creation that is essential for sustainable growth. With substantial contributions to GDP, fostering MSME productivity can amplify economic output. Moreover, MSMEs promote inclusive growth by empowering entrepreneurs, especially in rural areas, and encouraging innovation and technology adoption. Strengthening MSMEs also aids export promotion, bolsters resilience against economic shocks, and fosters financial inclusion. Thus, prioritising MSME support is critical for propelling India's economic trajectory while fostering equitable and sustainable development.

The Crisis of Delayed Payments

Faiz Askari: Could you elaborate on how the problem of delayed payments in MSMEs is resulting in a working capital crunch? What are some potential solutions to address this challenge?

Ketul Acharya: One of the primary challenges MSMEs face is the limited access to formal credit and finance. As per a report by the Global Alliance for Mass Entrepreneurship, the problem of delayed payments to MSMEs is in the magnitude of Rs. 10.27 lakh crore, an estimated 7.8% of the country’s GDP. Thus, a large number of purchasers use MSME suppliers to shore up their working capital. This is even more acute in cases of invoices with a GST component, the MSME has to remit the GST amount on the due date on which its receivable including GST is struck with the purchases. The negotiation capability of most MSME suppliers is low and they face the risk of losing further orders from the purchaser in case they protest.

The potential solutions include inculcating a prompt payment culture with the purchasers for proactively adopting the TReDS platform and availing other supply chain finance solutions offered by a burgeoning number of fintech’s,  with innovative products. The trade bodies as well as governments have to play a vital role in nudging the industry to inculcate a sense of discipline while honouring the dues of MSMEs.

Roadblocks for Micro Businesses

Faiz Askari: What are the major challenges faced by micro-enterprises in accessing formal credit or government schemes? How can these challenges be mitigated or overcome to ensure fair access to financial resources?

Ketul Acharya: Micro-enterprises face significant hurdles in accessing formal credit or government schemes, including limited collateral, lack of credit history, high-interest rates, complex application procedures, and limited awareness of available resources. 

To ensure fair access to financial resources, alternative collateral options, such as guarantors or movable assets, can be introduced, while credit scoring models can incorporate non-traditional factors for assessing creditworthiness. Government subsidies or interest rate caps can make credit more affordable, and simplified application processes aided by technology can ease the burden of paperwork.

Financial literacy programs and enhanced outreach efforts are essential for increasing awareness and empowering micro-enterprises to navigate formal financial systems effectively. These measures collectively aim to mitigate barriers and facilitate fair access to financial resources for micro-enterprises, fostering their growth and contribution to economic development.

Indian MSMEs' Global Aspirations

Faiz Askari: In comparison to other global economies, how is India uniquely positioned to become a global hub for entrepreneurship? What are some of the distinguishing factors that contribute to India's potential in this area?

Ketul Acharya: India possesses several unique factors that position it as a potential global hub for entrepreneurship compared to other economies worldwide. Firstly, its large and diverse market, with over 1.4 billion people, presents abundant opportunities for entrepreneurs to cater to various consumer segments, spanning urban and rural areas. Secondly, the country's rapidly expanding middle class is driving consumption trends, creating a fertile ground for innovative products and services. India's ongoing digital transformation, characterised by increasing internet penetration and digital infrastructure development, further amplifies opportunities for entrepreneurs to leverage technology and innovation to address societal needs and disrupt traditional industries.

Additionally, government initiatives such as Startup India and Make in India aim to foster a conducive environment for startups through regulatory reforms and financial incentives. India's abundant talent pool, thriving startup ecosystem in cities like Bengaluru and Mumbai, and a culture of frugal innovation further contribute to its entrepreneurial potential. The fund of funds schemes by SIDBI and NSIC have been supporting a number of new-generation enterprises. The innovation centres/ incubators at leading educational institutions have been aiding the creation of deep-tech companies

The government, institutions and NGOs have been playing a key role in the development of a new generation of entrepreneurs. The government has revamped and widened the credit cover through CGTMSE and NCGTC,  GAME and its alliance partner Udyam Learning have rolled out a number of programs/initiatives, in partnership with state governments, to encourage the inclusion of entrepreneurship education at the high school level.

Faiz Askari: How do financial institutions, including banks and NBFCs, play a major role in addressing the issue of delayed payments in MSMEs by providing credit solutions? Can you provide specific examples or initiatives in this regard?

Ketul Acharya: Financial institutions, encompassing banks and Non-Banking Financial Companies (NBFCs), are pivotal in tackling the issue of delayed payments encountered by MSMEs through tailored credit solutions. One significant approach is the provision of working capital loans or invoice financing, allowing MSMEs to access funds against outstanding invoices, thereby bridging the gap between the delivery of goods or services and the receipt of payment.

Moreover, financial entities offer trade finance solutions like letters of credit or factoring services, assuring payment, and mitigating the risk of payment delays for MSMEs. Examples of initiatives undertaken by these institutions include specialised programs for invoice financing, digital platforms for supply chain finance, participation in government-supported credit guarantee schemes, and the development of technology-driven solutions such as digital invoice management platforms.

Additionally, they provide capacity-building and advisory services to empower MSMEs in managing their finances effectively and negotiating favourable payment terms. By deploying these strategies, financial institutions facilitate smoother cash flow for MSMEs, ultimately fostering their growth and sustainability, which are integral to economic development and job creation.

The GAME Factor

Faiz Askari: What specific interventions has GAME implemented to uplift India's MSME and entrepreneurship ecosystem? Can you highlight some notable success stories or programs initiated by GAME?

Ketul Acharya: With the aim of uplifting India's MSME and entrepreneurship ecosystem, Global Alliance for Mass Entrepreneurship (GAME) addresses fundamental challenges and fosters a healthy ecosystem of mass entrepreneurship. Recognising the need for job creation, GAME focuses on transforming entrepreneurship into an aspirational endeavour through various interventions. With India having approximately 63 million MSMEs, predominantly consisting of self-employed businesses with minimal employment capacity, GAME aims to rectify the skewed distribution by fostering growth-oriented entrepreneurship.

GAME has implemented two key programs, the NBFC - Growth Accelerator Program (NGAP) and Growtherator, to uplift India's MSME and entrepreneurship ecosystem. NGAP, developed in partnership with the Small Industries Development Bank of India (SIDBI), aims to bridge the credit gap for Micro and Small Enterprises (MSEs) by supporting small Non-Banking Financial Companies (NBFCs) through resources, capabilities, and institutional funding access. Meanwhile, Growtherator focuses on amplifying entrepreneurial dynamism by collaborating with key stakeholders such as government, financial institutions, and corporates. Growtherator's pillars include quickly demonstrating new growth by existing businesses through training programs, peer learning, and mentorship; broadly communicating growth in the region via media coverage and role model creation; engaging non-entrepreneurial stakeholders to invest resources in growth through participation and infrastructure provision; and building local governance, execution, and professional capacities to sustain growth via ecosystem collaboration and capacity-building initiatives. Together, these programs aim to foster a supportive environment for growth-oriented entrepreneurship, job creation, and economic development in India's MSME sector.

One of the examples is that of Pranav Karwa. Pranav runs a tissue paper and foil business in Ludhiana, Punjab. He was facing multiple challenges in taking his family business forward due to a lack of access to market, information and credit. GAME helped him in his journey with various interventions through the above-mentioned models and today he has been successfully able to grow his business. 

Faiz Askari: How does GAME empower rural/urban social entrepreneurs, women, youth, and MSMEs to become job creators? Can you share some examples of the strategies or initiatives employed by GAME in this regard?

Ketul Acharya: GAME employs a multifaceted approach to empower rural and urban social entrepreneurs, women, youth, and MSMEs with the aim of transforming them into job creators. Recognising the untapped potential in tier 2 and 3 cities, which often lack access to opportunities, GAME focuses on creating a robust MSME ecosystem in every district and small town. The strategy involves fostering entrepreneurship beyond major economic hubs, envisioning a scenario where millions of small companies work on solving local problems.

One significant initiative is the implementation of the Entrepreneurship Mindset Curriculum in over a dozen states. This program addresses mindset issues and provides essential knowledge for aspiring entrepreneurs. Additionally, the National Rural Livelihood Mission's (NRLM) program is enabling access to finance for individual women entrepreneurs, breaking down barriers for women in entrepreneurship. Accelerator programs for small businesses that face stagnation are also yielding positive results, addressing the issue of enterprises plateauing after a particular growth phase.

GAME’s Women Economic Empowerment (WEE) initiative leverages private sectors to advance women’s economic empowerment through digital market platforms. Through rural e-commerce, social commerce, gig economy and job tech, WEE at GAME brings together partners and anchors consortiums to solve large-scale ecosystem challenges.

Faiz Askari: Looking towards the future, what is GAME's vision for entrepreneurship in India? How does GAME's work contribute to achieving India's economic goals and aspirations?

Ketul Acharya: GAME has been envisioned as a backbone organisation that aligns the ecosystem and mobilises action to address systemic challenges to job creation in India. As a backbone organisation, GAME intends to bring together a cross-section of alliances, partners, funders, and other players in the ecosystem who can help inspire an entrepreneurial movement across the country.  We would like to work with the stakeholders in the ecosystem to leverage each other strengths and work towards creating a robust environment for fostering entrepreneurship across easier geographies, enhancing ease of doing business, and easier access to formal credit. We also would like to work with policymakers to bring in desired changes in the relevant regulatory frameworks.

As a backbone organisation, GAME intends to bring together a cross-section of alliances, partners, funders, and other players in the ecosystem who can help inspire an entrepreneurial movement across the country.