Credit and finance for MSMEs: The Global Alliance for Mass Entrepreneurship – a nonprofit for entrepreneurship in India on Wednesday launched a report to address the delayed payment crisis faced by MSMEs in the country. The report, prepared in collaboration with the working capital marketplace C2FO, sought support from “three central pillars at the head: government and policymakers, finance enablers and financiers, and large enterprises including PSUs” for a coordinated ecosystem-wide effort.
With the support of these pillars, the report suggested actions including first, strengthening cash flow-based lending through the provision of on-tap, easy-to-use, credit guarantees; second, the proliferation of credit scores that use alternative data sources for new-to-credit customers; third, strengthening invoice discounting platform TReDS by integrating GST data and the provision of operationally light credit guarantees (specifically for factoring transactions); and fourth re-imagining the process of dispute resolution for delayed payments through online portals using GST data.
Releasing the report, V Anantha Nageswaran, Chief Economic Advisor, Government of India, said the government has been focusing on MSMEs since 2014 and hopefully over time, through some of the legislative and budgetary announcements, the government can slowly bring about a mindset shift, not just in the private sector, but also in the public sector.
“And then, mechanisms and artificial interventions will no longer be necessary with prompt payment culture becoming embedded as part of normal large enterprise behaviour,” said Nageswaran. In the 2023-24 budget, the government had proposed that payments to MSME suppliers cannot be claimed on an accrual basis and cannot be set off against taxable income unless the payment is actually made.
“That makes it clear that companies cannot have their cake and eat it too. Without a vibrant MSME sector, we cannot talk of India becoming a global economic power,” he added.
While there are over 200 government financing schemes targeted at MSMEs with outlays of several lakh crores (Mudra alone sanctioned Rs. 3.4 lakh crore in FY22 ), a combination of thorough documentation and a lack of awareness has meant that these schemes are unable to reach those most in need, the report noted.
This is compounded by the reality that lakhs of businesses have never been part of the formal economy and, consequently, have never had access to credit, it added. “When viewed from this lens, large enterprises are in a position of extreme privilege as they have infinitely better control over their cash flows and financial health.”
“Most MSMEs grapple with financial assistance, lack of mentoring support to scale the business, and technological obsolescence. Enterprises can become efficient and create more jobs if they have access to markets, finance & technology, and strategy to be competitive,” said Ravi Venkatesan, Founder, Global Alliance for Mass Entrepreneurship (GAME).
As of March 2, 2023, the delayed amount payable to MSMEs across all buyer types including state governments and PSUs, railways, proprietorships and more was Rs 18,275 crore across 62,734 applications and cases, according to the data from MSME Samadhaan portal. MSMEs had filed 1.34 lakh delayed payment applications till date involving Rs 34,294 crore, of which only 23,585 cases involving Rs 4,440 crore were disposed by the facilitation councils.