The key to growing India’s economy lies in the growth of micro, small, and medium enterprises (MSMEs). To add some perspective sector, in a paper dealing with investments in the sector, NITI Aayog -- the government’s policy think tank, explained that MSMEs, directly and indirectly, create about 70 million jobs, account for 45% of India’s manufacturing output, and 40% of exports. The sector also accounts for around 30% of the country’s GDP.

The government is well aware of the contribution and potential of MSMEs, and over the years, it has extended packages aimed at boosting growth and deepening the market. In fact, in Budget 2019, the Finance Minister reiterated the government’s commitment to providing stimulus to the MSMEs and made the highest ever allocation of Rs 7011.29 crore to its Ministry. But then came the black swan event that derailed all plans for this or any other sector -- the coronavirus pandemic.

Every sector has seen its share of woes due to the COVID-19 induced lockdown. But MSMEs seemed particularly hard hit, as most small industries did not have the financial wherewithal to cushion them in such a long-drawn-out crisis. Research papers suggest that MSMEs saw a 20-50% hit on earnings due to lockdown.

In a measure to settle down the unrest caused in the Indian economy, the government announced the Atmanirbhar Bharat Abhiyan in May 2020. The scheme has a simple objective: to make India a self-reliant economic powerhouse.

At the core of Atmanirbhar Bharat is the MSME sector. A slew of stimulus measures aimed at MSMEs raised the spirits of companies in this segment.

Atmanirbhar MSMEs

Cash infusions and stimulus packages are undoubtedly necessary, especially in times of deep crisis. But the sector needs its own Atmanirbhar Abhiyaan. It needs to be self-reliant and not dependent on government largesse. However, it is a big ask -- especially, given that MSMEs are almost always cash-strapped, with little access to credit. And hence, the first step in getting MSMEs to stand on their own feet is by giving them easy access to credit.

For some years now, the conversation around access to credit has almost always involved fintech. MSMEs, however, are often left out of this conversation because of the unorganized nature of the sector. In a post-pandemic world, no company can afford to ignore digital finance. Physical transactions have fallen because people are afraid to handle currency. Contactless financial services may be the way to go.

There are several government initiatives to promote digital financial services to MSMEs. Why do such fintech initiatives matter? Fintechs can help MSMEs access credit faster and easier than old-fashioned banking. Traditional methods demand time-consuming processes, unwanted paperwork along with collateral and the physical presence of the borrower.

In a post-COVID world, fintechs are a safe option. Since the paperwork is entirely digital, it is also faster and far less cumbersome. Approvals are quick and disbursement of the credit is sooner than traditional lending. These fintech companies offer a host of credit solutions from trade finance to inventory finance to simple working capital loans to MSMEs.

The Impediment and Its Quick Fix

The technology is available and there are fintech companies ready with innovative products. The problem lies in getting MSMEs to accept digital in finance. There are two significant roadblocks to MSMEs accepting fintech -- One of them is accessibility. The MSME sector includes tiny units, many in far-flung areas of the country. They face a significant issue in accessing the Internet. This is where the government’s latest announcement -- Public Wi-Fi Access Network Interface or PM-WANI -- will help. By making WiFi available to all, the government will ensure that access is no longer an issue for MSMEs to access technology

The second roadblock is less practical -- it is about trust. Fintech companies are not as trusted as established brick-and-mortar banks. Even the oldest fintech companies lack the gravitas and acceptance that banks have; remember, some banks in India are centuries old and are a part of the business landscape in a way that fintech cannot hope to be. This is where the spate of banking scams helps fintech companies. With banks, public and private, under the scanner for bad loans and suspicious business practices, trust in them is eroding. Fintech, with its new and shiny image, promises transparency as well as ease.

The shift to fintech will not happen overnight. But MSMEs are slowly but surely making that shift. Reports estimate that the MSME sector faces a credit deficit of around Rs 16 lakh crore. Fintech could help bridge that yawning gap -- with a little help from the government.

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