Navigating through post-Covid challenges: 7 steps for pandemic-hit MSMEs to speed up recovery

August 13, 2020 12:38 PM

Ease of Doing Business for MSMEs: If we visualize the last few years as a boxing match, MSMEs in the ring have been able to withstand punches of demonetization, repeated jabs of GST, and now almost a knock-out punch with prolonged lockdown with no business activity.

MSMEs should keep a close watch on the financial fitness of their enterprises.
  • By Mehernosh Tata

Ease of Doing Business for MSMEs: Covid-19 has had a severe impact on India’s economy, with MSMEs being the worst hit. While these are trying times, it is also an opportunity for the 63 million MSMEs in India to focus on thriving in the future, rather than merely surviving. To reach a $5-trillion economy target, the Indian MSME segment must play a pivotal role in our country. Hence, it is essential that this sector receives adequate support from the government, regulators, and large corporates. The current pandemic provides an optimal opportunity for companies who are agile and flexible to adapt to changes. In order to navigate this volatile and uncertain environment, few pointers of help are enumerated as follows – 

  • Be customer focused – During these times, staying closely connected with clients and developing an in-depth understanding of their future needs, would help. Customizing innovations and products that meet evolving customer needs, places you as part of the solution needed in the new normal. It will also help you stay ahead of the curve of knowing your customers and your competition. 
  • Be open to change: They say in adversity lies opportunity. Thus, this is the right time for MSMEs to seek out new avenues and possibilities for expansion. This also needs leaders to be alert to developments that can be leveraged with minimum capital investment. For example, textile manufacturers have moved to making PPE kits, etc.
  • Financial fitness: MSMEs should keep a close watch on the financial fitness of their enterprises. Avoid extending long periods of credit to your customers in the current environment and realistically relook at operating expenses. Exercise discipline in reducing spends but without compromising on team morale and productivity etc.
  • De-leverage where possible: Revenues of large corporates are expected to drop by 10 to 12 per cent and EBIDTA margins to drop by 20 per cent, in FY21. MSMEs serving these corporates will also see a significant reduction in their sales. Hence, it is important to project your future cashflows and try and bring down your debt obligations. 
  • Effectively use the various government schemes where you are eligible: The Rs 3 trillion Emergency Credit Line Guarantee Scheme (ECLGS) package for MSMEs, announced by the Government of India, could act as restart capital at a lower cost of funds with a moratorium of principal repayment in the first year. Additionally, SIDBI also has many sector-specific schemes, one can avail of. It is important to do your homework and use the schemes available, that are best suited for you, to ensure your business growth in these challenging times. 
  • Technology and digitalization will play a big role in the new normal: Being digital and being able to connect with your customers through technology, will play a significant role in differentiating your services, as we move ahead. Digitalization reduces costs and makes your organization more efficient. Prepare for it by upskilling yourself, your team, and existing infrastructure. 
  • Be frugal: Avoid all spends that are not related to customer acquisition or retention. There are many marketing tools freely available online, that you could use to promote your products and services. Limit discretionary spends for the short-term and set an approval limit for your team spending. 

Also read: PM SVANidhi: Street vendors want over 2X credit limit increase; 1 lakh applications sanctioned so far

While implementing these steps will be immensely helpful to MSMEs, there is much-needed support required from corporates and the government. The government has introduced several positive initiatives to strengthen financing to MSMEs. Over the past few years, it has been encouraging several informal micro-units to register themselves under GST, Udyog Aadhar, etc. and participate in various SOPs being offered. The recent Rs 3 trillion package announced by the government, will help the MSMEs get instant access to much-needed liquidity from financial institutions, which otherwise would have been more conservative in lending.

Corporates/lending institutions have a large role in helping these enterprises. Multiple customer surveys highlight that many MSMEs do not step forward to avail benefits of government schemes, due to a lack of awareness. Lenders can bridge this gap by educating MSMEs about such schemes and helping them, take advantage of the same. 

The current situation has made it imperative for lenders to move to digital platforms to ensure faster access to credit and efficient processes for smoother customer experiences. Optimal use of technology platforms coupled with data analytics can help in originations, quick decision-making and risk mitigation. Lenders should also be flexible and use alternative data points such as the latest credit bureau scores, loan repayment track records, enterprise vintage, bank statements, GST returns, etc., to make better credit decisions as opposed to merely relying on 3-years audited financial data.  

If we visualize the last few years as a boxing match, MSMEs in the ring have been able to withstand punches of demonetization, repeated jabs of GST and now almost a knock-out punch with prolonged lockdown with no business activity. They have still managed to move to the next round and have not given up. To these valiant fighters, I would end this article with a quote from the iconic movie Rocky, quoted by none other than Sylvester Stallone ~ “It ain’t how hard you hit; it’s about how hard you can get hit, and keep moving forward. How much you can take and keep moving forward.” You have made it this far and you can make it past whatever the future holds!

Mehernosh Tata is the CEO of Edelweiss Retail Finance Limited. Views expressed are the author’s own.

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