While government support has been critical in getting businesses off the ground, releasing a new round of bolder and well-targeted reforms will propel the micro-medium-and-small enterprises (MSME) sector much higher.
In addition, the RBI has permitted Non-Banking Financial Companies (NBFCs) to access bank funds through Targeted Long-Term Repo Operations (TLTRO) to encourage incremental lending and the resuscitation of stressed sectors. NBFCs would be permitted to give a credit lifeline to financially distressed MSMEs under the scheme.
While these steps will assist NBFCs in overcoming liquidity constraints by allowing them to receive financial assistance from larger financial institutions and banks, they will also make cash more freely available.
Due to the volume of paperwork and documentation, and often the lack of credit history and suitable collateral, most MSMEs, especially first-time borrowers, find it hard to be approved for loans. The expense of compliance, which includes all permits and complex taxation, also significantly impacts businesses. In addition, the difficulties of running a firm in the face of a pandemic and a drop in demand have further complicated things for this already-stressed sector.
The latest steps taken by the government send a strong message about ease of doing business, balancing competition for local businesses and entrepreneurs, expanding the network of beneficiaries, and increasing transparency. However, given the wide range of issues, it is critical that the government strengthens its reforms and implements some game-changing policies in the industry.
NBFCs like Kinara have been giving business loans to support MSMEs; these loans have been instrumental in improving their conditions following the pandemic.
Let’s have a look at how business loans in COVID crisis have helped some small business entrepreneurs:
Ranjith Kumar, the owner of Arumugam Agencies in Pollachi, is engaged for the past 2.2 years in rented business premises. He is running a wholesale and retail business in milk products such as milk, curd, ghee, butter, and he is a direct dealer of Suguna Milk and Krishna Milk. Ranjith availed a business loan from Kinara Capital of Rs 2.5 lakhs.
During the pandemic he innovated and expanded his business to start a new division of direct to consumer (B2C). So, he has been providing commodities like milk, curd, ghee, butter, cool drinks during lockdown directly to the customers and dealers of 380 branches in the Udumalpet area. Ranjith has also expanded his inventory to provide cool drinks. Due to these two new business strategies, he not only overcame the challenges but is now growing tremendously.
Mohamed Gani is a young entrepreneur from Trichy, Tamil Nadu. He has been managing a wholesale trading business of general medicine for more than 8 years with his own capital.
In July 2019, he availed of a business loan from Kinara Capital of Rs 7 lakhs. During the pandemic, he battled challenges in his business. He was facing a sudden reduction in orders; buyers’ payments were on hold, among other problems. One of his innovative responses to this pandemic has been to start free delivery with his vehicle. In addition, he is increasing the sales of hand sanitisers and masks.
Now he delivers stock to his customers free of cost. He gets orders directly from doctors, and he has increased the stock and sale of hand sanitisers and masks. He stopped supplying stocks on credit. This gave him a positive result, and he increased his income. He paid all his EMIs to Kinara month on month, even during the pandemic, and covered all his other obligations as well.
During the Covid crisis, business loans have given respite to many MSME owners. During this period it’s important to keep trying new ideas and ideating other ways to make profit despite the challenges from Covid-19.