Indian MSME sector lending opportunity

1. 03/11/17, 4)54 PMIndian MSME sector lending opportunity | LinkedIn
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Indian MSME sector lending opportunity
Published on May 31, 2017 |
Vaibhav Ajay Mishra
Co-founder| FinTech| Retail Banking| Business & Revenue Gr…
5 articles
386 48 1
The reality is that individual banks don’t necessarily have to lend a lot of money or all
the money, as there are other businesses where they can make money. They get to make
their own decisions about what’s right for them. But if we want our economy to grow
and our country to be prosperous, we need to make sure great ideas receive the support
they need to get off the ground. The long-term decline in lending to our MSMEs will
hold a thousand tales of missed opportunity.
We have a generation of businesses that is being held back by not getting adequate
access to finance to fuel growth. A reason for this is that the products and services
offered by banks do not reflect the realities of modern day business. Waiting for weeks
on end to hear back about a loan application doesn’t suit businesses that work in much
faster cycles, where six weeks can be make or break. A lot of businesses also find that
banks don’t understand what their business does.
The standard model of bank lending is to take a big security to cover the risk of any
losses. This doesn’t work for asset-light businesses, which are increasingly prevalent in
our economy. A graphic designer has no significant assets to secure a loan against, but
that doesn’t mean they’re not a great business. Too often the bank is forced to say no
because their model can’t service today’s economy.
One study found that banks with low levels of customer satisfaction were growing their
market share against those with higher levels of satisfaction. This is dangerous because
it gives banks little incentive to treat their customers well. They don’t have to worry
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about disappointing businesses by rejecting credit applications, because businesses are
unlikely to go anywhere else.
Indian economy is expected to grow by over 6.5% per annum until 2020. It can become
the second largest in the world, ahead of the USA, by 2050, and the third largest after
China and the United States by 2032. However Industry experts believe this target
would be difficult to achieve without the active participation of the MSME sector. It's
sad to see that almost 92% MSME still remains un-served or under-served by banks in a
country where 40%+ of GDP is MSME sector. Out of the total exports in India, 43% is
regards to exports from the SME sector. This figure expected to go up to at least
47%-48% by 2018. The government has already announced a National Manufacturing
Policy (NMP) that aims at raising the share of manufacturing to 25% of GDP by 2022.
Nearly 60% of the SMEs in India fall in the unorganized sector. Once this untapped
potential becomes the source for growth of these units, the size of Indian GDP can
surpass that of developed nations.
A small entrepreneur faces several difficulties including access to finance to expand
their operation. In addition, the loans that they get are not on preferential rates but are
available around 16%-30%+ which adds to their cost of operation. In several Asian
counties, loans are available on interest as low as 3% annually. India should take such
steps.
With digital india/ Aadhar push It will be interesting to see RBI prepared to approve the
new wave of alternative financing.
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1 Comment
5moSantosh Trivedi
Retired as Senior Manager (Audit & Inspection) at PUNJAB NATIONAL BANK completing over 39 years of s…
Like Reply
The solution to the under- financing of MSME sector has to come via Govt intervention only. The commercial
banks' concerns about the security of their funds are not unfounded. A!er all lending is a commercial activity
and unless the borrowers repay the loans, no further lending will be possible for the banks. The govt has to
create a guarantee find for the purpose in addition to ensuring that unscrupulous elements do not take undue
advantage of the situation...
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Vaibhav Ajay Mishra
Co-founder| FinTech| Retail Banking| Business & Revenue Growth| Sales, Marketing, Compliance & Operations| Wealth mgmt| Working Capital| Brand Building|

3. 03/11/17, 4)54 PMIndian MSME sector lending opportunity | LinkedIn
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