The recently concluded MSME Day has once again brought to the forefront the critical role that Micro, Small, and Medium Enterprises (MSMEs) play in the economy. In India, MSMEs contribute significantly to GDP, employment, and innovation. To accelerate their growth and ensure their sustained success, financial services firms are pivotal.
On the role of non-banking financial companies (NBFCs) in fostering MSME development, Jairam Sridharan, managing director of Piramal Finance, said, “We recognise the critical role financial institutions play in driving the holistic growth of MSMEs. To foster their development, financial institutions must adopt a multi-faceted approach. First, seamless access to finance is vital. Financial institutions should provide tailored lending solutions, including microloans and flexible credit lines, catering to the unique needs of MSMEs. Streamlining the loan approval process through digital platforms can significantly reduce bottlenecks, enabling faster access to capital.”
Second, beyond lending services, he said, NBFCs should focus on offering financial literacy programmes to add significant value. Educating MSME owners on financial management, investment strategies, and risk mitigation can empower them to make informed decisions, thereby enhancing their business sustainability and growth potential.
Third, collaboration is key. Financial institutions should partner with government and industry organisations to create comprehensive support systems. This collaboration can provide MSMEs with access to grants, subsidies, and mentorship programs like the Pradhan Mantri Mudra Yojana and the Startup India initiative, offering them the necessary resources and guidance to scale their operations, Sridharan.
Additionally, using technology and data analytics can transform MSME financing. By adopting alternative credit scoring models and big data, financial institutions can more accurately evaluate the creditworthiness of MSMEs, particularly those without traditional credit histories.
He added, “Financial institutions play an essential role in driving MSME growth by providing accessible finance, enhancing financial literacy, fostering collaborative ecosystems, and leveraging technology. This holistic approach not only supports the growth of individual enterprises but also strengthens the broader economic fabric.”
Digital Payments: A Catalyst for Growth
Akash Sinha, CEO and co-founder of Cashfree Payments, emphasised the transformative potential of digital payments. “Digital payments are emerging as a game-changer in taking Indian MSMEs to the next level of growth by introducing innovations to reduce costs, make secure transactions and expand market reach – all of which are crucial for businesses with limited resources.”
Beyond efficiency, digital payments also provide invaluable data insights. In the hands of MSMEs these insights can help them enhance customer satisfaction ultimately improving business outcomes. Moreover, advanced security measures ensure that digital transactions are safer than ever, mitigating risks and fostering trust among businesses, he added.
Sinha also said that through enhanced financial inclusion, digital payments can also bridge gaps between unbanked MSMEs and formal financial systems, ensuring equitable access to financial services. This transformation is pivotal as India progresses towards a $5 trillion economy, with fintechs playing a vital role in driving MSME growth through AI-driven solutions and decentralised finance platforms. As we embrace a mobile-first economy, projections indicate unprecedented opportunities for MSMEs to thrive digitally.
Bridging the Credit Gap
Madhusudan Ekambaram, Co-Founder & CEO, KreditBee, underscores the importance of credit accessibility for MSMEs. “MSMEs are widely recognized as the backbone of the Indian economy, significantly contributing to capital generation, employment, manufacturing, and exports. These enterprises account for approximately 30% of India’s GDP and employs over 11 crore people across various industries. Despite the potential, MSMEs face significant challenges, particularly the access to credit that hinders their progress. An estimate of over 80% of MSMEs, reportedly do not have access to formal financial system.
Fintech companies have become catalysts of change, utilising technology to bridge the financial gap. By providing faster, more accessible, and tailored credit solutions, fintech companies empower MSMEs to drive economic development, create jobs, and drive innovation. Through digital documentation and video KYC processes, MSMEs can now apply for loans online, resulting in quicker approval and disbursal times.
This allows businesses in even the most remote parts of the country to access finance, enabling them to fuel their growth. With continued innovation and collaboration among fintech companies, traditional lenders, and regulatory bodies, the vision of a thriving and inclusive economy for emerging India can become a reality.
Financial services firms are key drivers of holistic MSME growth. Through digital payments, accessible credit solutions, financial literacy programs, and collaborative support systems, these firms can significantly enhance the growth and sustainability of MSMEs. This holistic approach not only supports the development of individual enterprises but also strengthens the broader economic fabric, paving the way for a thriving and inclusive economy.
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