The Missing Piece in SME Lending

Source: Entrepreneur India
Author: Pankaj Gindodia

Demonetization, GST implementation and more recently, big loans turning into NPAs, have all added to the challenges faced by Small and Medium Enterprises (SMEs). Following the default by IL&FS, there has been a liquidity crunch for the NBFCs affecting lending to SMEs, adding to the woes of this already stressed segment. There is an enormous focus on this sector which is the backbone of the country’s economic progress, creating huge employment opportunities and contributing to the GDP growth. Various steps are being taken to relieve the stress on these SMEs.

Some of the initiatives that are expected to help the SMEs are:

  1. Loans in 59 minutes through PSUs
  2. TReDS platform
  3. Loans through MUDRA
  4. Restructuring of loans given to MSMEs
  5. Talks of starting a Public Credit Registry for SMEs
  6. Steps to give loans digitally by leveraging Flow Data like GST, Bank Statement etc

India has around 60 million SMEs with an annual turnover of up to INR 250 crores. These SMEs often lack access to formal financing. While there is a huge addressable market for the above initiatives, SMEs are still struggling to meet their working capital needs.

The SME segment also faces challenges due to cut-throat competition, intense price wars and delays in the payments from their customers (who generally happen to be large organizations). Initiatives like GST have put an enormous compliance burden on the SMEs who, in addition to the build/manufacture/sell activity as per their core competence, must now also worry about additional overheads.