MSME Sector Key to India's Development Goals

Article by Amit Patjoshi, CEO, Palladium India

India stands at a pivotal juncture where a booming youth population and a rapidly developing economy are catalyzing the nation to become the third-largest economy in the world, reaching the $7 trillion mark by 2030. However, this vision can only be realized by harnessing the full potential of our people, especially those at the bottom of the pyramid.    

Our government’s vision of Viksit Bharat, a developed India, hinges heavily on the robust growth of the dynamic MSME sector. This sector employs over 120 million people in India typically operating in informal set up, working in challenging conditions yet managing to sustain livelihoods and contribute significantly to the economy. Informal set ups serve as breeding grounds for creativity, leveraging close-knit community relationships and local knowledge to identify niche opportunities. This encourages entrepreneurial spirit and reduces bureaucratic hurdles. Nevertheless, to achieve true inclusivity in the Viksit Bharat vision, we must address the persistent challenges within the MSME landscape, particularly in emerging Tier 2, 3 cities, and rural areas.  

Understanding the Struggles of MSMEs

A significant portion of the MSME sector remains financially excluded, lacking access to formal financial services such as credit, savings, and insurance.  According to a report by the International Finance Corporation, around 70-80% of MSMEs in India do not have access to formal sources of finance. Additionally, those residing in rural areas often suffer from a lack of adequate infrastructure like electricity, transportation, and communication services.  Many nano and micro entrepreneurs struggle to grow due to challenges like lack of the latest technologies and resources. A study by FICCI revealed that while micro enterprises have been utilizing digital technology across different business functions, only 51 percent use digital tools for sales and marketing, and 48 percent for finance. 

Women MSMEs Face Unique Challenges 

Women in the MSME sector face unique challenges, primarily in financial access. The World Bank estimates a $1.7 trillion finance gap for women entrepreneurs globally, with women less likely to have bank accounts compared to men. Despite a reduction in the gender gap in account ownership in developing economies from 9 to 6 percentage points, many women remain unbanked. Only 20% of rural women own land or property, limiting collateral for loans. Additionally, networking opportunities are scarce, with rural women entrepreneurs having 40% less access to business networks than men, hindering their ability to find mentors, partners, and markets.

Empowering MSMEs for Inclusive Viksit Bharat - 

Financial Innovations and Support

Microfinance institutions and government schemes are lifelines for MSMEs. Think about the impact of MUDRA loans, SIDBI schemes, and the Credit Guarantee Fund Trust for MSMEs. These initiatives offer crucial financial support that can mean the difference between survival and success for many small businesses. Also, private players like BharatPe and PhonePe are creating digital ecosystems that offer payment solutions, credit facilities, and insurance tailored to small businesses. Civil society organizations and foundations are also making strides in improving credit access through innovative crowd-funding models. These organizations are harnessing the power of collective funding to provide microloans and financial resources to underserved MSMEs. 

Despite these developments, there is huge room for improvement, with the potential for government, private sector, and CSOs to collaborate and create a more inclusive and supportive financial ecosystem for MSMEs.

Technological Integration and Market Access

E-commerce platforms tailored for MSMEs are opening new worlds of opportunity. Amazon’s “Karigar” program and Flipkart’s “Samarth” initiative help Indian artisans, weavers, and small businesses sell their products online, offering logistical support and training to make the process seamless.  Also, crowdsourcing and crowdfunding platforms like Ketto and Milaap are enabling entrepreneurs to raise funds from the public. This democratizes access to capital and allows small business owners to pitch their ideas and gain support from a wide audience. 

 Skill Development and Training

Government and private partnerships can create programs focused on digital literacy, financial literacy, and specific technical skills. Google’s “Digital Unlocked” program is a fantastic example, offering free courses on digital marketing, finance, and more to help small businesses grow online. Government of Odisha’s Self-employment & Entrepreneurship Skill Development Program, Swakalpa, is another great example of empowering nano entrepreneurs with essential skills, mentorship and resources required.  Also, community-based incubators in rural and semi-urban areas provide hands-on training, business development services, and networking support to MSMEs.  

Support for Women Entrepreneurs

Supporting women entrepreneurs is crucial for a more inclusive economy. Initiatives like Rang De offer microloans to women, helping bridge the financial gap. Encouraging land and property ownership among women provides the collateral needed for loans, giving them the financial leverage to start or expand their businesses. Also, platforms that allow women entrepreneurs to network, find mentors, and access markets can make a huge difference.