MSMEs are a vital pillar, making significant contributions to the economy. They are a substantial force, responsible for more than 30% of the country’s GDP and 45% of exports. These enterprises are employment generators, providing livelihoods for over 120 million individuals. In fact, if nurtured with the appropriate stimulus, the sector can play a much stronger role and contribute to economic growth significantly. Before we delve into what is required to boost MSME growth, let us understand their challenges. According to the MSME Sentiment Survey conducted by Kinara Capital, there are two critical barriers that impact the growth of MSMEs, they are:
The findings were derived by analysing the views of over 2,600 formally-registered MSMEs with Udyam Registration Numbers from across sectors, namely manufacturing, services and trading.
Recognising the importance of the MSME sector, the Indian government has implemented various initiatives like streamlined loan schemes, tax benefits, technology upgradation programs and skill development initiatives to support and promote its growth. Additionally, introducing digital platforms and e-commerce channels such as ONDC has opened newer avenues for MSMEs to expand their reach and tap into a broader consumer base. While this has helped in addressing their woes to some extent, MSMEs need comprehensive support both-financial and non-financial to grow and develop their businesses.
Financial priorities, such as access to formal credit, help small businesses to address their growth aspirations and wither economic downturns. Non-financial support, such as access to networking, business training, market information, and technology, can help them to improve their business practices and become more competitive. It can also help the MSME sector to tap into new markets and opportunities. Addressing their financial and non-financial needs is crucial to support the MSME sector further. It ensures the growth and success of their businesses. These priorities can vary based on the sector, geography, business model and, above all, the business style and acumen of the entrepreneur.
Access to formal credit is essential for MSMEs to grow and succeed. Formal credit can help MSMEs to invest in new equipment and inventory, expand their operations, meet unexpected expenses, and create jobs. Therefore, MSMEs search for financial institutions that offer business loans, lines of credit, or other forms of financing.
The amount of funding that small businesses need can vary depending on the size and stage of the business. For example, a startup may need a smaller loan to cover initial expenses, while a more established business may need a bigger loan to finance expansion.
MSME loans can be used to finance various expenses, such as working capital, equipment purchases, or expansion. For instance, a business may need working capital loans to cover payroll and other expenses until it receives customer payment. Or, a business may need an asset purchase loan to buy new machinery or equipment.
The terms and conditions of business loans can vary depending on the lender, so it is important to compare different lenders before applying for a loan. Some lenders offer fixed-rate loans, while others offer variable-rate loans. Some lenders may require collateral, while others may not. MSMEs should carefully consider their financial needs and repayment capacity before applying for a business loan.
Kinara Capital, one of India’s leading last-mile lending firms, provides collateral-free business loans to MSMEs to grow their businesses. The MSME loans from Kinara are at a reducing rate of interest. Apart from asset purchase loans and working capital loans, the firm offers HerVikas Program, specifically designed for women entrepreneurs.
MSMEs are also increasingly looking for innovative products that can help them address their credit needs. According to Kinara Capital’s MSME Sentiment Survey, which sheds light on the financial needs and preferences of MSMEs in India, 55% of the small businesses surveyed desired for Instant Line of Credit. It is their preferred financial product to expedite their everyday business decisions.
Instant Line of Credit is a type of revolving credit that is available to borrowers who meet certain eligibility criteria. Once approved, borrowers can access the credit line up to a pre-approved limit as needed without going through a lengthy loan application process. Banks, credit unions, and other financial institutions often offer instant credit lines. This revolving credit option allows borrowers to borrow and repay funds as per their requirements, and they are only charged interest on the amount they utilise.
With online accessibility and potential collateral-free loan options, borrowers can efficiently access funds and meet their immediate financial needs. From a sector perspective, the manufacturing sector, in particular, demonstrated the highest demand for instant business loans, with over 60% of them seeking such a solution.
Within the Instant Line of Credit, Bill Discounting is one of the products that a significant number of MSMEs were very keen on. In fact, 8% of respondents were interested in bill discounting, a financial product allowing businesses to borrow money against their unpaid invoices.
Bill discounting is a financial transaction in which a financial institution (the discounter) provides immediate cash to a business (the drawer) in exchange for the unconditional promise of payment from a third party (the drawee) at a future date. The discounter charges the drawer a fee (the discount) for providing the cash upfront.
Bill discounting is a popular form of short-term financing for businesses. It can be used to meet a variety of cash flow needs, such as paying for inventory, payroll, or taxes. It is also a way for businesses to get access to credit without having to go through a traditional bank loan. The discount rate is typically calculated as a percentage of the face value of the invoice. The discount rate will vary depending on the creditworthiness of the customer and the length of the discount period.
Products that allow flexibility is another important financial support that MSMEs are increasingly looking for. As per the MSME Sentiment Survey, over 16% of the respondents wanted flexible repayment products, ie, products that allow them to make daily/weekly or variable loan payments based on their business turnover during a specific time period.
Flexible repayment modes offer MSMEs better control over their finances. This can be helpful for businesses with fluctuating cash flow, as it gives them more flexibility to pay their loans when they have the money.
There are a number of different flexible repayment modes available, each with its advantages and disadvantages. Some of the most popular options include daily repayment, weekly repayment, and monthly EMIs.
When choosing a flexible repayment mode, it is important to consider the business’s cash flow nature very closely. If MSMEs have very volatile cash flows, then a daily or weekly repayment plan may be the best option for them. However, if their cash flow is more predictable, then a monthly EMI plan may be a better option.
By choosing the right flexible repayment mode, MSMEs can improve their cash flow management and make it easier to repay their loans.
Among MSMEs in the trading sector, flexible credit ranked as the second most desired financial product attribute, with 15% of them highlighting it as a financial product that they would like to avail. These survey insights highlight the need for tailored financial products that cater to the unique requirements of small businesses, paving the way for their growth and success.
A commercial vehicle loan is a type of financing that enables individuals or businesses to purchase commercial vehicles for their operational needs. These loans are specifically designed for acquiring vehicles such as trucks, vans, buses, or any other vehicles used for commercial purposes.
The loan amount and terms are typically based on factors like the type of vehicle, its value, the borrower’s creditworthiness, and the intended use of the vehicle. Commercial vehicle loans can be obtained from banks, credit unions, or other financial institutions, and they may require collateral and have specific repayment terms tailored for commercial vehicle financing. India currently faces an acute shortage of truck and delivery drivers, which hampers timely product delivery. Among the survey respondents, 15% expressed a desire for a commercial vehicle loan, while 10% indicated a preference for a 2-wheeler loan for their business.
The service sector emerged as the most vocal, with over 20% emphasising the importance of securing a commercial vehicle loan to address the inability to deliver finished products or raw materials on time to customers, as it significantly impacts their turnover.
MSMEs require a range of non-financial services to support their growth and success. These services go beyond funding and encompass areas such as mentorship, networking, market access, business development resources, and technology support. Mentorship programs provide valuable guidance and expertise to navigate challenges, while networking opportunities foster collaboration and knowledge sharing.
Market access services help MSMEs reach new customers and explore business opportunities. Business development resources assist in strategic planning and expansion. Additionally, technology support ensures MSMEs can leverage digital tools effectively. Non-financial services are essential for MSMEs to thrive in a competitive business environment and unlock their full potential. Let’s understand the key non-financial support that MSMEs desire:
Effective networking within the supply chain network is critical for the growth and success of MSMEs. They can access a wealth of knowledge and expertise by actively engaging with industry peers, suppliers, manufacturers, distributors, and service providers. Networking provides opportunities to build contacts /alliances, exchange knowledge and even understand best practices.
This collaborative environment enables small businesses to gain valuable insights, stay updated on industry trends, and discover innovative solutions to optimise their supply chain operations. Through networking, they can build relationships with key stakeholders, foster trust, and gain access to valuable resources and opportunities that can contribute to their business growth and competitive advantage.
Networking is the highest non-financial service MSMEs choose. More than one-fourth of the MSMEs surveyed consider industry networking with their supply chain ecosystem crucial for their growth. Many of them are even open to paying for such services.
Business support services are a broad range of services that provide valuable assistance to businesses in a variety of areas. These services can cover a wide range of functions, including administration, finance, human resources, marketing, IT, legal, and compliance. These services help streamline operations, save time, and ensure compliance with regulations. By outsourcing tasks and accessing specialised expertise, businesses can focus on their core activities and achieve sustained growth and success.
Small businesses often face challenges in meeting timely GST and income tax filing requirements due to a lack of understanding of the complex tax laws. This can lead to penalties and other financial consequences. To address this, many small businesses seek professional guidance and support from accounting and tax experts.In the MSME sentiment survey, over 13% of respondents stated GST & ITR calculation and filing support as critical support that will help them significantly.
Accounting and tax experts can help small businesses understand the tax laws and ensure they file their returns correctly and on time. They can also help small businesses to manage their tax compliance and reduce their tax liability.
Many different accounting and tax experts can help small businesses. Some experts specialise in GST, while others specialise in income tax. It is important to choose an expert who has experience working with small businesses and who understands the specific challenges that they face.
Overall, the GST and ITR filings can be used to track their financial and non-financial performance. By filing accurate and timely ITRs, MSMEs can improve their chances of getting financial assistance and meeting their non-financial goals.
Digital presence is a priority for MSMEs in today’s digital age. A strong online presence can help businesses reach new customers, build relationships, and grow their business. Some of the crucial aspects that MSMEs require to enhance their digital presence are creating a website, using social media, optimising search engines, and running digital marketing campaigns. By building these, MSMEs can improve their online presence and reach new customers.
Here are some of the benefits of enhancing digital presence for MSMEs:
According to the survey, 21% of MSMEs are looking for support with regard to website creation, digital platform listings, and onboarding on online trading platforms. Within this category, website creation and digital platform visibility were chosen by 15% of MSMEs, while 6% sought support to be listed on MSME trading portals like TReDS and GeM. Notably, the services sector ranked website creation and digital platform visibility as their top non-financial services requirement at 27%.
Apart from the above key priorities, close to 9% of MSMEs expressed the need for personal Finance (Investment & Insurance) Advice. These findings highlight the importance of tailored non-financial services to support the specific needs of MSMEs, allowing them to thrive and achieve significant income growth.
In recent years, there has been a growing recognition of the importance of services catered specifically for small businesses. There are a number of ways to provide financial and non-financial services to MSMEs. Providing financial and non-financial services to MSMEs is essential for economic growth and poverty reduction. Providing them with the tools they need to succeed will help them to create jobs, boost the economy, and improve the lives of millions of people around the world.
Non-Banking Financial Companies (NBFCs) are important in providing business loans to small businesses. They offer various financial products and services, including working capital loans and asset purchase loans. NBFCs are often able to provide more fast and flexible financial solutions than banks, which can be helpful for them. The importance of NBFCs for MSMEs is growing. As MSMEs become more sophisticated, they increasingly seek financial solutions that meet their specific needs. NBFCs like Kinara Capital are well-positioned to meet these needs.
Kinara Capital is a fintech company founded in 2011. The company is headquartered in Bangalore, with 133 branches and a workforce of 1,600+ employees. They serve small businesses in over 100+ cities and have disbursed over INR 5,000+ crores across 91,000+ collateral-free loans.
To apply for business loans without collateral, registered MSME entrepreneurs can evaluate their eligibility for a loan in just 1-minute by starting the digital-first application process by downloading myKinara App. Eligible small businesses can submit the necessary documents and the loan amount will be disbursed digitally to their bank account within 24-hours.
Kinara Capital also provides multilingual doorstep customer services to MSMEs interested in learning more and needing assistance to apply. Also, we have a dedicated customer support team available between Monday – Friday (9.30 AM – 6.00 PM) at our toll free number 1800-103-2683 for any questions or assistance. This ensures that entrepreneurs can get the help they need throughout the loan process.
