SMEStreet Future Ready Webinar on Revival Roadmap for Struggling MSMEs

MSMEs (Micro, Small, and Medium Enterprises) play a pivotal role in driving economic growth and job creation, both globally and in India. In India alone, MSMEs contribute significantly to GDP, employment, and exports, accounting for approximately 30% of the country's GDP, 45% of manufacturing output, and 40% of total exports. Despite their critical importance, MSMEs are highly susceptible to business challenges, especially during economic downturns, such as the COVID-19 pandemic and the global inflation surge that followed.

SMEStreet successfully concluded a highly informative webinar titled “Revival Roadmap for Struggling or Sick MSMEs,” which brought together business turnaround experts, consultants and advocates of MSME development. 

This comprehensive report elaborates on the key insights shared during the webinar, with additional data analysis, policy trends, and strategic recommendations that can help MSMEs not only recover but thrive in today’s competitive environment.

The webinar was attended by Smt K Krishnaveni, Managing Director, Mahalearning Education Pvt ltd, Shri Subir Paul, National President, Indian Chambers of Commerce for SC ST and Women Entrepreneurs, (ICCSTWE) and  Dr Raj V Siddiqui, Chairperson of the Uday Khanij Industrial Cooperative Society Ltd. Mr Faiz Askari, Founder and Chief Editor of SMEStreet moderated the webinar.

Youtube video of the SMEStreet Future Ready Webinar 

The webinar discussed six major points:  

1. Current Landscape: The Extent of the MSME Crisis

The economic challenges faced by MSMEs have been exacerbated in recent years by global disruptions, supply chain bottlenecks, inflationary pressures, and changes in consumer behavior. These factors have led many MSMEs to struggle with liquidity, debt, and operational inefficiencies. According to a 2023 report from the Ministry of Micro, Small and Medium Enterprises (MSME) in India:

• 30-35% of MSMEs are classified as financially distressed.

• Over 50% of MSMEs report delayed payments from large clients, severely impacting their cash flow.

• A significant number of MSMEs, especially in the manufacturing sector, have seen production capacity shrink by 20-25% since 2020.

• 12% of MSMEs have either shut down or significantly downsized operations due to the inability to manage operational and financial challenges.

These figures underscore the urgent need for targeted interventions and innovative strategies to prevent further closures and job losses in the MSME sector.

2. Identifying Early Signs of MSME Struggles: Key Indicators

Early identification of a business in distress is crucial to implementing a successful turnaround. During the webinar ,Mrs K Krishnaveni, Managing Director, Mahalearning Education Pvt ltd, highlighted several key indicators:

• Declining Revenue & Profit Margins: A consistent drop in sales and narrowing profit margins indicate that a business is losing its competitive edge or failing to meet market demand.

• Cash Flow Constraints: The inability to meet short-term obligations, delayed payments from clients, or an over-reliance on credit are common signs of financial strain.

• Rising Debt Levels: Over-leveraging, especially without a corresponding increase in revenue, makes businesses more vulnerable to market fluctuations.

• Operational Inefficiencies: Wasteful processes, outdated technologies, or mismanagement of resources can erode productivity and profitability over time.

Mrs K Krishnaveni also emphasized, “Businesses must act as soon as these warning signs are observed. Procrastination in addressing these issues often results in the situation worsening and leads to severe consequences like insolvency or bankruptcy.”

3. Financial Restructuring and Debt Management: Emerging Trends and Best Practices

Financial restructuring is a critical component of any turnaround strategy for struggling MSMEs. Shri Subir Paul, National President, Indian Chambers of Commerce for SC ST and Women Entrepreneurs, (ICCSTWE) highlighted several emerging trends in financial restructuring during the webinar:

• One-Time Settlement (OTS) Programs: Banks and financial institutions are increasingly offering OTS schemes, where businesses can negotiate a single, reduced repayment sum to settle outstanding debts. This has been especially useful for MSMEs burdened with high-interest loans.

• Debt Restructuring: MSMEs can opt to restructure their existing debts by extending repayment tenures, reducing interest rates, or converting part of the debt into equity. This provides immediate relief in terms of cash flow and helps businesses focus on rebuilding their core operations.

• Equity Infusion: Some MSMEs are exploring private equity or venture capital funding to inject fresh capital into their business. This allows them to reduce their dependence on debt financing while bringing in expertise from investors who often contribute strategic insights.

Shri Paul also explained, “The key is to approach restructuring with a well-thought-out plan. MSMEs must evaluate their financial health and determine whether they need external funding or simply better management of existing resources.”

Banker’s Behaviour and Perspective towards Tribal Entrepreneurs

Mr Paul pointed out that there is also a need to realign our thoughts and practices towards the banking experience of tribal entrepreneurs. “MSMEs from remote parts, mostly owned by tribal origin entrepreneurs often complaints for their banking experience. The branch level experience of business owners who visits the bank for MSME loan etc often quoted that their banking needs are unnderserved as the bank manager is not so welcoming. This situation must change. Bankers must consider that their behaviour towards MSMEs can motivate or demotivate them to do business. This is a major hurdle for economic upliftment of tribal economy. I urge top evel bankers to look into it and ensure that the bank managers should also be motivated food supporting the MSMEs who are coming from tough backgrounds such as tribal.”

4. Government Support: Policies and Schemes for MSME Revival

Governments around the world have rolled out various support schemes and policies to help MSMEs recover from the economic shock. In India, the government has significantly enhanced its support for MSMEs through the introduction of policies aimed at easing financial stress and promoting business growth. Dr Raj V Sidddiqui, Chairperson, Uday Khanij Industrial Cooperative Society Ltd  shared an overview on flagship initiatives by Government that are making significant immpact on revival push for MSMEs. Dr Raj pointed out,

Some of the key initiatives discussed during the webinar include:

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE):

This scheme provides collateral-free credit to MSMEs, helping them access funds without the need for large assets as security. The scheme has been a game-changer, especially for smaller MSMEs that struggle to access traditional bank loans.

• Impact: Since 2020, the CGTMSE has supported over ₹4 lakh crore in loans, benefitting nearly 2 million MSMEs.

Emergency Credit Line Guarantee Scheme (ECLGS):

Launched during the pandemic, ECLGS offers collateral-free loans to MSMEs affected by COVID-19 disruptions. The scheme has been instrumental in providing liquidity to MSMEs, particularly in sectors such as hospitality, tourism, and retail.

• Impact: By the end of 2023, over ₹3.5 lakh crore had been disbursed to MSMEs under the ECLGS, helping prevent large-scale business closures.

Production-Linked Incentive (PLI) Scheme:

Targeting specific sectors such as electronics, textiles, and pharmaceuticals, the PLI scheme incentivizes MSMEs to increase production capacity by offering subsidies based on output. The scheme has been extended to other sectors in 2024 to further drive MSME growth.

• Impact: MSMEs in these sectors have seen an average increase of 10-15% in production output since the scheme’s implementation.

Insolvency and Bankruptcy Code (IBC) Reforms:

The Indian government has introduced pre-packaged insolvency resolutions under the IBC framework, specifically for MSMEs. This allows struggling MSMEs to restructure their debts outside the traditional court processes, providing a quicker and more efficient path to revival.

• Impact: Over 200 MSMEs have already benefitted from pre-packaged insolvency resolutions since the reform's introduction.

5. The Role of Turnaround Specialists and Consultants: Strategic Interventions

The involvement of turnaround specialists and management consultants is often essential to a successful MSME revival. These experts bring in a fresh perspective, identifying inefficiencies that business owners may overlook. During the webinar, Dr Raj V Sidddiqui also shared case studies of MSMEs that successfully turned around by following strategic interventions:

• Operational Efficiency Audits: Consultants can conduct comprehensive audits of operations, identifying areas where costs can be cut and productivity improved.

• Digital Transformation: Implementing digital tools and automation in operations can significantly reduce costs and increase efficiency. Dr Raj highlighted the example of a manufacturing MSME that reduced production costs by 20% by automating certain processes.

• Market Realignment: Turnaround specialists can help businesses reposition their products or services to better align with market demands. In many cases, introducing new product lines or entering untapped markets has revived struggling businesses.

6. Conclusion: A Comprehensive Roadmap for MSME Revival

The road to revival for struggling or sick MSMEs is challenging but achievable. Early detection of financial and operational distress, combined with strategic interventions like debt restructuring, financial planning, and expert consulting, can save businesses from closure. Government policies play a vital role in providing the financial support and regulatory framework needed to stabilize distressed businesses.

Faiz Askari, Founder of SMEStreet and moderator of the webinar, aptly concluded, "The revival of MSMEs is not just about financial support, but about strategic evolution. We must continue to empower MSMEs with the tools, resources, and knowledge they need to thrive in this ever-changing business landscape."

The interactive Q&A session also saw participants engaging with the panel, seeking practical solutions for their unique challenges, adding to the success of the event.

The "Revival Roadmap for Struggling or Sick MSMEs" webinar stands as a testament to SMEStreet’s commitment to empowering MSMEs with the tools, knowledge, and support they need to succeed in today’s competitive market.

This webinar outlines the key trends and policy shifts that MSMEs must navigate to ensure a successful revival. By leveraging government schemes, restructuring strategies, and expert guidance, MSMEs can overcome the challenges ahead and chart a path toward long-term growth and sustainability.