By Kanishk Maheshwari
Credit and Finance for MSMEs: India’s 6.3 crore MSMEs sector contribute significantly towards the socio-economic development of the country. The sector has contributed 30 per cent to India’s GDP and has created 11.10 crore jobs. With an increase in the number of MSMEs by a CAGR of 18.5 per cent from 2019-2020, MSME exports surged 21.8 per cent from $155.9 billion during FY20 and 31.9 per cent from $143.9 billion during FY21 to $190 billion during FY22 (according to Annual MSME report 2021-22).
With a vision to boost MSME’s contribution to 50 per cent to India’s GDP by 2025, it becomes imperative to improve and enhance MSMEs access to finance and that they have adequate working capital, especially as the country is witnessing surge in interest rates. The Reserve Bank of India increased the repo rate by 35 basis points (bps) to 6.25 per cent which took the cumulative hike to 225 bps since May 2022. While those MSMEs covered under ECLGS would get the credit at the earlier rate but the remaining MSMEs will get adversely affected by this increase.
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To facilitate easy access to finance various policy initiatives and schemes have been undertaken by the government. Some of them include ‘Factoring Regulation (Amendment)’- a bill which was passed to expedite the payment ecosystem for MSMEs, Emergency Credit Line Guarantee Scheme (ECLGS), creation of Udyam Portal. While registration on the Udyam Portal is crucial to get access to finance from banks and NBFCs, however, fact remains only about one crore MSMEs were registered on the Udyam Portal2 out of 6.3 crore MSMEs which is mere 15.87 per cent (government’s data).
Time is opportune to leverage digital innovation. An electronic platform Trade Receivables Discounting System (TReD) has been set up to facilitate financing/discounting of trade receivables of MSMEs through multiple financiers. It envisages to reduce the time taken for sellers to receive payments which is one of the bottlenecks faced by the MSMEs. While the intention behind setting up this platform was to provide aid to MSMEs, however its success has been limited due to buyer’s reluctance as there is no win-win situation for them since they are obligated to repay on time.
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There are five ways which can accelerate TReDS adoption:
- Integration of Government e-Marketplace (GeM) with TReDS: The procurement of goods and services for all Central Government and State Government Ministries, Departments, Public Sector Units (PSUs) and affiliates is being undertaken through the GeM portal. MSMEs are also being encouraged to market their products through GeM. As on September 2022 GeM portal has served 11.26 million orders worth Rs 2,99,059 crores (US$ 37.54 billion) from 5.06 million registered sellers and service providers for 62,354 buyer organisations. Government is a big client for MSMEs. As per the Public Procurement Policy for Micro and Small Enterprises (MSEs) Order, 2018, 25 per cent of procurement by every Central Ministry/Department/PSUs should be done from MSME Sector. It is suggested that GeM should be integrated with TReDS, wherein all buyers should be mandated to register themselves on TReDS and MSMEs to upload the invoices. However, it should be at the discretion of the MSME to avail invoice discounting or not. However, Integration will aid in timely payments to the MSMEs and ensure they have adequate working capital.
- Mandating PSUs not on GeM to register themselves on TReDS: To ensure that the MSMEs obtain their working capital on time and payments are not delayed, all PSUs who are not registered on the GeM portal, should be mandated to register on GeM and TReDS. It is imperative that PSUs are also made accountable for timely disbursement of funds over and above the private sector.
- Synchronize PLI Scheme with TReDS: While the buyers are hesitant to use the TReDS platform, and a lot of them do not even register on the platform, a unique way in which TReDS could be successfully implemented is that while private players are availing benefits under the PLI scheme, one of the mandatory documents should be the registration document on TReDS. This would ensure that big players taking advantage under the PLI scheme and buying from MSMEs would at least register on the platform.
- Invoice Exchange: On similar lines of stock exchange, an invoice exchange should be set up wherein the platform will be opened to general public and not only restrictive to the banks and NBFCs for invoice discounting of the MSMEs. This would act as an investment instrument for the general public, reduce the dependency of MSMEs on financiers/NBFCs for discounting, lesser burden on NBFCs/financiers as the general public will also be able to make the payment, participate in auction etc. The invoices could be uploaded in smaller denominations/units which could be purchased by the individual investor.
- Information Dissemination: Information dissemination is crucial for the success of any scheme/initiatives/platforms. Lack of awareness and limited knowledge about the benefits that would accrue to the beneficiary often leads to minimal usage of the same. Hence, it becomes imperative that MSMEs ought to be educated, outreach and awareness campaigns should be created, mega drives across States, regions should be organized to ensure that the MSMEs are aware of the schemes.
Kanishk Maheshwari is the co-founder and managing director of Primus Partners. Views expressed are the author’s own.
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