Does Anybody Care for MSMEs? Matter of Great Concern for MSME Entrepreneurs

Article by Mr. L Subramanyan, Founder, Trivone Content Services 

Many years ago, when I started my own outfit, with all the dreams of being an entrepreneur, I approached a leading nationalized bank for a working capital loan under Mudra. The manager of the bank met me and once he realized what I wanted told me “why do you want to be under the Mudra scheme? The bank also has its own targets and we will do it for you under the bank’s schemes”. The only catch was that under the bank’s scheme, they wanted hard collateral as against ‘no collateral’ under Mudra. When I pointed this out, he politely declined to entertain me any further. So, no loan!

Another interesting data point. One of India’s largest business conglomerates which prides itself on corporate governance publicly announced that in light of Covid situation, they have decided to reduce their expenses by around 30%. All national dailies carried this news and the share price of its constituent companies went up. I happened to meet one of the senior folks at the conglomerate and asked him as to how they were planning to achieve the 30% reduction. His answer was simple, and chilling – “we will simply extend the credit period from 30 days to 60 days”. I further pushed him “for all suppliers?”. His response was chilling – “No only the smaller guys, they cant do much, in any case”.

So when I watch our Finance Minister wax eloquent about how important the MSMEs are to India’s economic development, I chuckle softly, and sadly. When our political leaders, including the Hon Prime Minister, calls MSMEs the backbone of our economy, I worry. I worry that we are soon going to be spineless, for the MSME is being broken, every day, by everyone – from bankers to suppliers to tax authorities, there is no exception.

The problem is that MSMEs don’t have any bargaining power, either collectively or singularly. Even now, there are cases where companies treat a payment order from MSME ministry’s Samadhan scheme as nothing more than a nuisance that can be conveniently ignored. Individually, they are an easy and soft target for large companies.

Many years ago, there was a situation where a large entertainment company owed more than Rs 70 lac to an MSME. The reason was that they had not paid the MSME supplier for over 4 months and the MSME continued to perform the Services since so much was pending and the company in question was a very large client – perhaps the largest in India. After going through huge difficulties in salary payment, statutory payments etc, finally the CEO of the MSME decided to write directly to the CFO of the company. Two things happened within a week – first, the CFO a decent person, immediately ordered the release of payments and all payments stuck for 4 months due to ‘no invoices’, ‘no signatory’ or ‘approval pending’, suddenly got released within 3 days. As simple as that.

The second result was that the company’s senior bloke who was responsible for ordering the services called the MSME CEO to Mumbai and told him that ‘since your services are not very satisfactory, we have decided to terminate them and gave a 30 day notice’. And this is the same person, who had been goading the MSME to continue to provide the services, promising the payment for 4 months. The only matter that was discussed during the discussion was not about the quality of services but 55 minutes out the 60 minute meeting went into – ‘but why did you write to the CFO?’.

Examples like these are there with every single MSME. Cases of arbitrariness, deliberate delays, complete lack of empathy can be found at the door of every single MSME. Caught between a delayed payment cycle (which can stretch even to 120 days) and an aggressive tax regime, the MSME entrepreneur is left to figure out his own destiny. Almost every single ‘scheme’ of the government for the MSME can be availed only if the officer on the other side of the table is ‘sufficiently motivated’. 

The pain on the SME side is felt the highest in the ‘Small’ businesses, which are ambitious, generally started by the first generation entrepreneur, not too small as to be bereft of any aspiration of growth, providing specialized services and who need working capital but don’t have crores worth of property to pledge. I recall a discussion with a fellow traveler who rued ‘if I had Rs 5 crore of property, why would I beg the bank for a Rs 1 crore loan?’. His problem, against his Rs 1 cr property, the bank had graciously given him Rs 35 lac as a working capital loan, while his need was for Rs 85 lac. To fund the balance, he had to go to the non-banking channels, which gave him the money at 22% interest. Does he an option? I think not, except to decide not to grow.

Not that there are no solutions. For instance, why not criminalize activities by large companies when they delay payments to MSMEs? Given the pace of judicial process in India, this will at least have some sort of a preventive measure for willful delays. Secondly, payment of interest for such delays must be high and mandatory beyond the credit period. If the tax authorities can charge interest on delayed payment, interest on interest, penalty and lead to a situation where the total amount payable is multiple times the principal outstanding, why not extend the same to the MSME sector. Thirdly, the resolution in Samadhan scheme has to be within a fixed time frame  and cannot go beyond 30-45 days from the date the complaint is filed by the MSME entrepreneur. It has to be kept in mind that for the small businessperson, the question is of survival unlike the larger businesses, where is the issue will be of lower cash flow, in case of a delayed payment.

If the government is serious about MSME, this is a good time to convert some of the rhetoric into some actionable stuff. What the MSME needs is not just schemes, but rules in the economic system that have to be followed by everyone, including the big fish – the corporates.

Of course the Government can choose to do nothing and continue with the useless verbiage. 

Mr. L Subramanyan, Founder, Trivone Content Services, the views expressed in this article are his personal.