Credit and Finance for MSMEs: Micro, small and medium enterprises (MSMEs) hit adversely during the pandemic can be redeemed only by reassessing the architecture of the financial sector, said Pronab Sen, economist and former Chief Statistician of India, addressing the 7th anniversary celebrations of private sector lender Bandhan Bank.
“Our worst case scenario is our MSME sector may never revive and best case scenario is we will go back to where we were which was sub-optimal. The second case is possible only if we re-examine the architecture of our financial sector,” Sen affirmed.
He highlighted the increased pricing power (of products and services) of corporates after a large part of the market share moved into their hands due to the damage done to MSMEs.
“While the corporate sector was performing strongly, the non-corporate sector was not – in fact, it was damaged”, he added.
It has become easier for corporates to pass on the increased costs to the consumers in the absence of the non-corporate competitors, especially MSMEs, at local levels. “This is not going to get better unless the MSME sector bounces back,” Sen stated.
“Relying on the corporate sector to push development forward for the same amount of investment and saving we are doing today, we will be experiencing far slower growth. It has started happening already.”
Sen stated the MSME sector doesn’t have enough money lenders and banks do not seem willing to lend working capital loans to the vast majority of small businesses as latter’s risk profile does not fit their (lenders) criteria.
Banks should focus on lending to the MSME sector as it is the key driver of growth and employment creation. Though Non-Banking Financial Companies (NBFCs) came into the picture to bridge the gap, they are in as much trouble as MSMEs in the present scenario, asserted Sen.