The pandemic struck the business world of India and looks at the coming budget with a lot of hope. The pandemic, with a high-interest rate, constrains the growth of businesses.
The pandemic induced economic crisis, was an unprecedented one, with wide-scale implications in every part of the economy. Nowhere it is more seen than in the MSME sector. Even now, they are yet to return to normalcy.
As a result, all the businesses placed their hopes on the new budget. They hope this budget will solve the problems of cash crunch and credit accessibility. The higher the cost for NBFC service in this sector, the higher it will be for MSME borrowers.
Most new-age fintech NBFCs continue to borrow at rates higher than 14-15%. This eventually makes it difficult to participate in the already announced government schemes and also becomes high costs with over 20% paid by MSMEs.
This state of affairs will constrain the growth of these businesses, which is the backbone of the Indian economy. It forms 30% of India’s GDP and 45% of manufacturing exports.
To solve all these economic problems in the MSMEs, the government declared many liquidity measures such as TLTRO, PCGS, ECLGS, and even revised the definition of MSME.
The names are good, but when it comes down to matter, it is very difficult for the new-age fintech NBFCs to take advantage of the schemes.
When fintech or small NBFCs cost of borrowing exceeds 14%, the benefit of such a scheme could not transmit to the bottom of the MSME pyramid. Among the aids, the Fund of Funds scheme is yet to be operational.
Thus, the coming budget should focus on better implementation and transmission of the schemes that are already in place.
SIDBI introduced special liquidity support through fintech NBFCs for MSMEs. It ensured operational continuity and liquidity support to MSMEs to tide over the impact of the second wave.
Experts expect similar schemes to quickly rejuvenate the economy with the aid of MSME and the emerging fintech ecosystem.
In the MSME sector, when it comes to lending, PSBs seem to be ceding ground to private banks and NBFCs. Because of that, small businesses often fail to get loans on time.
Other factors include lack of digital footprint and sufficient documentation, years of operation and turnover.
The fintech players are changing this, by making it easy to offer affordable loans to these underserved businesses and using data-driven models to calibrate credit risk.
The budget should announce measures to incentivise and strengthen the support of SIDBI-like institutions and PSBs. So that smaller NBFCs are better served and ensure credit to SMEs at a lower cost of capital.
Access to easy, feasible and seamless capital is necessary for the rebuilding phase of the economy. For that more trust from the budget is needed for the fintech sector, which will also boost financial inclusivity.
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