Covid-hit micro enterprises struggling to recover with sales at 44%, profit at 31% of pre-lockdown levels: Survey | The Financial Express

Covid-hit micro enterprises struggling to recover with sales at 44%, profit at 31% of pre-lockdown levels: Survey

Ease of doing business for MSMEs: Around 14 per cent of micro businesses had permanently exited during the assessment period (May 2020-July 2021) with 38 per cent citing a lack of personal savings and consumer demand as the major reasons for exiting the business.

Covid-hit micro enterprises struggling to recover with sales at 44%, profit at 31% of pre-lockdown levels: Survey
Immediately after the lockdown, 54 per cent of the micro businesses did not receive payments from buyers/customers.

Ease of doing business for MSMEs: A survey of 1955 micro enterprises in the MSME sector by the Global Alliance for Mass Entrepreneurship – a nonprofit for entrepreneurship in India, showed that businesses are still struggling to recover back to pre-Covid levels. According to the survey, on average, sales are only 44 per cent and profits are only 31 per cent of pre-lockdown levels. In terms of cash reserves, 76 per cent of respondents said they have no cash left in reserve while only 25 per cent of businesses are faring well, reporting better performance than pre-lockdown. 

“Some potential explanations could have a differentiated impact depending on the sector and different responses from entrepreneurs. Some quickly adapted to changing circumstances, such as adding new products/services or increasing their marketing strategy,” Ravi Venkatesan, Founder, GAME told FE Aspire. 

The results were based on the August 2022 round of the survey first conducted between May 2020 and July 2021 in two rounds to assess how the MSME sector managed the pandemic period lockdowns and problems regarding financial impact, business confidence, and stress management. The survey was supported by IKEA Foundation and research centre LEAD at KREA University in Chennai. 

The impact on sales, profit and cash reserves has mostly stayed the same over the last two years. 2020-2021 survey results noted that immediately after the first lockdown, sales and profit plummeted to a quarter (27 per cent) of pre-Covid levels, which meant that businesses operated under lower or no margins. Across the study, 60-80 per cent of micro businesses also reported insufficient cash reserves. 

Moreover, around 14 per cent of micro businesses had permanently exited during the assessment period with 38 per cent citing a lack of personal savings and consumer demand as the major reasons for exiting the business. 

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However, “one figure that has remained consistently above 50 per cent, even in the last round, was the lack of strategy to deal with external shocks. Among the most pressing concerns to quickly address is the need for credit to small businesses to ensure they get reinvigorated after such a long, uncertain period,” said Venkatesan. 

The survey shared some suggestions for financiers to address credit needs by designing new products or building new and/or strengthening existing processes. First, when a disruption like Covid hits, entrepreneurs will benefit from an Emergency Overdraft Facility. The government can create a guarantee fund to enable financial institutions to facilitate the same, he added.

Second, schemes that adopt features from the Subordinate Debt Scheme, that is, scheme with features of a long-term moratorium and higher capital investments, will allow MSMEs to innovate and build products and solutions to address the changing demand and emerging challenges. Third, with delayed payments being a major concern during a lockdown, factoring and invoice financing needs to become flexible, easily accessible and promoted, Venkatesan noted. 

Other key findings from the May 2020-July 2021 survey rounds were: 

  • Immediately after the lockdown, 54 per cent of the micro businesses did not receive payments from buyers/customers.
  • 51 per cent of respondents sought or applied for credit, and 77 per cent received the same.
  • Around 33-41 per cent of respondents were denied loans (both formal/informal) due to a lack of sufficient collateral and/or lacked positive credit history.
  • In terms of layoffs, 34 per cent of micro businesses reported downsizing.

Also read: 43% of MSMEs likely to remain below pre-Covid EBITDA margins in FY23: Crisil

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First published on: 20-11-2022 at 12:50 IST