U GRO Capital and Dun & Bradstreet Explore Latest in MSME Lending

·         Global growth slowed markedly in 2023, and we expect growth to remain subdued in 2024. With a growth rate of 7.3% in FY23, India is poised for a strong growth in FY24.

·         We understand that a robust MSME activity will be pivotal to India’s growth story.

·         MSME sector in India continued to demonstrate resilience and growth. Since its inception in 2020, MSME registrations on UDYAM have increased by 2.4 times by FY23, while they have generated 1.6 times more employment opportunities.

·         Despite the ongoing global economic slowdown, the optimism level among small businesses persists reaching a peak in Q4 2023, the highest since 2022.

·         Dun & Bradstreet’s proprietary risk rating score of MSMEs indicate that risk to MSMEs moderated in 2022 compared to 2019.

·         Low risk in the MSME sector and declining delinquency rates are enhancing the borrowing prospects for MSMEs. Both SCBs and NBFCs share of credit to micro and small firms has increased in FY23 compared to the pre-pandemic period.

·         Post pandemic, ticket size of loans by lenders to MSMEs has increased while approval rates have fallen indicating cautiousness after the removal of pandemic relief measures.

·         The drop in the approval rate is greater in PSUs for both the medium risk and high-risk firms while NBFCs remain the most cautious for the high-risk firms.

Highlights of the sectors covered in the report

Light Engineering

Among MSMEs, enterprises in the iron, steel and other metal works have the highest market size and it is also the most efficient sub-sector in terms of debt to total turnover across various sizes of entities. While enterprises in this sector are seen across India, Maharashtra is the dominant market with subsector hubs such as Gujarat for plastic/ glass/ ceramic products.

Food Processing

Animal or vegetable fats/oils and waxes, edible preparations, fruits, nuts, and cereals are the major contributors to the food processing sector in the MSME segment. Cash dealings are the highest in this sub-segment compared to other sectors. While there is a presence across India, the dominant markets are Maharashtra, Gujarat and Rajasthan.

Electrical Equipment

Miscellaneous equipment and appliances, heavy equipment/office machines, electrical circuit components, and electronics equipment in communications are the other dominant sub-industries. It has a pan-India presence, with Maharashtra being the dominant market, and Gujarat and New Delhi being sub-sector hubs.

Chemical Industry

Half of the turnover in this sub-sector is accounted for by organic chemicals, inorganic chemicals, and fertilisers. It has a pan-India footprint.

Healthcare

Healthcare delivery and service (dealers, distributors, hospitals, diagnostic centres) account for the lion’s share of the market and recipients of a majority share of credit to the sector. As in other sectors, smaller entities (dental clinics, eye clinics and pharmacies) require growth capital, which can be met through various business loan and equipment financing solutions.

Auto Component

Vehicle and vehicle parts contribute to a major part of the Auto component industry, whereas Hotel, Food, Transport and Manpower services form a majority of the market and are recipients of a larger share of credit.