Credit and finance for MSMEs: Traditionally lending has been collateral-backed wherein MSMEs pledge assets as a guarantee to secure the credit, and so the underwriting followed by lenders has by-and-large been collateral-based. However, over the years, the landscape has evolved with the change in how business is done. As collaterals have been depleting with joint families breaking into nuclear families, banks have relooked at the need of putting up a large amount of collateral. Coupled with digitisation and cash flow-based type of lending, surety bonds are coming up as an alternative to underwrite MSME loans.
According to the budget speech by finance minister Nirmala Sitharaman this year, the use of surety bonds as a substitute for bank guarantee will be made acceptable in government procurements to reduce indirect costs for suppliers and work contractors.
Vikash Khandelwal who runs surety company Eqaro Surety has been involved in the endeavour to introduce the concept of sureties in the country over the last 6 years and has led the advocacy efforts towards surety guarantees being approved as accepted security for infrastructure projects. Khandelwal told FE Aspire at the SME Artha event recently about the opportunity at large in the surety guarantees market, its role in easing MSME credit access, and more.