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One Out Of Five MSMEs To See Stretch In Working Capital Days: Report

A fifth of the micro, small and medium enterprise (MSME) sector by significance is anticipated to notice a growth in working capital requirement this fiscal, compared with the pre-pandemic (fiscal 2020) level, said Crisil MI&A Research on Monday.

Its biannual MSME report indicated that sectors such as dyes and pigments, construction, gems and jewelry will notice a material stretch in their working capital days.

Notably, MSMEs accounting for 40 per cent of India’s exports, will encounter headwinds from the coming economic downshift in advanced countries, especially the US and Eurozone. These two geographies account for a third of India’s overall exports.

Pushan Sharma, Director- of Research, Crisil Market Intelligence and Analytics said, “In the Gujarat cluster, export-oriented MSMEs in Ahmedabad and Surat are predicted to witness their working capital days swell this fiscal compared with the pre-pandemic levels. The Ahmedabad cluster will see an expansion of 20-25 days, navigated by a rise in the working capital requirement of the dyes and pigments sector and the Surat cluster by ~35 days, moved by higher working capital requirement of the diamond exports sector.”

The Ahmedabad cluster has a major presence of MSMEs in dyes and pigments, pesticides, and pharmaceuticals. The working capital stretch here will be because of a drift in working capital days for the dyes and pigments sector for three motives: inventory pile-up following dumping by Chinese producers; the recent earthquake in Turkey; and a slowdown in the US. 

“These three account for 20 to 25 percent of the aggregate exports of dyes and pigments, pesticides and pharmaceuticals,” according to the report.

 As for Surat, 90 per cent of India’s diamond exports originate from there. Diamonds constitute more than half of India’s gems and jewelry exports and a significant decrease in demand from the US, the largest export market, is having a significant impact. 

That, in turn, is having a bearing on receivable days, leading to an increase in working capital days from 140 before the pandemic to more than 200 this fiscal, it mentioned.

In the construction-roads sector, the underachievement of budgeted capex last fiscal- to rein in fiscal deficit- has added to the challenges of developers in meeting working capital demand amid high commodity prices. This has led to an increase of more than 100 days in their working capital cycle this fiscal, compared with pre-pandemic levels.

Elizabeth Master, Associate Director- Research, Crisil Market Intelligence & Analytics, “Liquidity benefits, such as payments on the achievement of small milestones, that MSMEs in the construction-roads sector have been receiving from the central government for the past few years as a part of the Atmanirbhar package will not be available from this fiscal. That will further increase working capital days.”

The debt requirement for the MSME sector is estimated at over Rs 100 lakh crore. Of this, 70 per cent is for working capital requirements. A fourth of the debt is sourced formally. The cost of capital from the informal segment is extremely high. Thus, understanding the working capital needs across sectors and clusters is critical, the report said.

News Updated Date: 19th July 2023

MSME ministry makes Aadhaar authentication for informal micro units voluntary to boost Udyam registration

The MSMEs ministry has made Aadhaar authentication for informal micro enterprises voluntary to facilitate access to priority sector lending. The MSMEs ministry has made Aadhaar authentication for informal micro enterprises voluntary to facilitate access to priority sector lending. The notice came after the federal government received the proposal for Aadhaar authentication from the MSME ministry, which stated that it was done “in the interest of good governance, Government allowed the ministry to improve access to services. Linking businesses with Aadhaar helps the government address the challenges faced by potential beneficiaries, but it is voluntary to ensure promoters are comfortable with sharing their Aadhaar details.

News Updated Date: 31st May 2023

NBFCs lending to small businesses to see $15bn deal flow by FY33

According to the survey, only 14% of India’s 6.4 crore MSMEs have access to loans. Overall their financial status is $1,955 billion out of which $1,544 billion is in debt. The market size is projected to be $819 million, of which only $289 million is satisfied by formal credit, considering that slightly more than half of this demand comes from viable enterprises.

According to Anshul Agarwal, MD & co-head of consumer, financial institution, and business service group at Avendus, this industry is confronted with a significant challenge of a $500 billion crediting gap and $100 billion exists for the small ticket loan segment. We think that MSMEs are the backbone of our economy and that their expansion is essential for us to reach a GDP of $10 trillion and that this market is beginning a virtuous cycle, and lenders in this market will be able to produce a 20% return on equity over the long term.

NBFCs are regarded as being more advantageous than banks due to their extensive presence and low-cost branches. Additionally, they perform better at finding clients and determining the clients’ capacity for payback.

News Updated Date: 15th May 2023

MSME Credit Demand Surges, While Default Rates Decline: Cibil Data

The demand for credit from MSMEs in India increased by 31% YoY in January 2022, while overdue loan accounts decreased by 29%, according to CIBIL. This suggests that the Indian government’s emergency credit guarantee scheme launched in 2020 has successfully supported MSMEs during the pandemic. The scheme has been extended several times, and lower interest rates have helped businesses access credit, leading to a growth in demand for credit. Experts attribute the default drop to loan restructuring under the scheme and improved economic conditions.

The growth in credit demand is a positive sign for the Indian economy, as businesses start investing and expanding again after the pandemic-induced slowdown. However, some experts express concerns about the sustainability of this growth due to ongoing uncertainty around the pandemic and rising inflation’s potential impact on businesses.

The Indian government’s credit guarantee scheme has provided MSMEs with loans up to INR 2 crore ($270,000) at a concessional interest rate of 7.5% for up to five years, with 75% of the loan amount guaranteed by the government. This has encouraged MSMEs to borrow and invest in their businesses, leading to a surge in credit demand.

In summary, the Indian economy is gradually recovering from the pandemic-induced slowdown, with MSMEs playing a critical role in this recovery. The continued success of the credit guarantee scheme will be crucial in sustaining this growth and ensuring MSMEs can access the credit they need to thrive.

News Updated Date: 04th April 2023

Emergency Credit Line Guarantee Scheme – MSMEs Received A Loan Of 3 Lakh 61 Thousand Crore Rupees

The Emergency Credit Line Guarantee scheme was announced in 2020 as a part of the Aatmanirbhar Bharat Abhiyan to assist qualifying MSMEs and business companies in restarting their operations in the wake of the disruption of the COVID-19 pandemic. 

Under the Emergency Credit Line Guarantee Plan, loans of 3 lakh 61 thousand crore rupees have been given access to Micro, Small and Medium Enterprises, or MSME. The 1 crore 19 lakh borrowers have profited from this. Dr Bhagwat Kisanrao Karad, Minister of State for Finance, stated in a written response to a question in the Lok Sabha that this programme encompasses all economic sectors.

News Updated Date: 20th March 2023

SIDBI to offer Unsecured Loans to MSMEs via Co-lending Spaces

To offer MSMEs Unsecured Business Loans, SIDBI collaborates with Ambit Finvest Pvt. Ltd. SIDBI has never co-financed a project with a non-banking financial institution before (NBFC). The joint venture is following the Reserve Bank of India’s most recent Co-Lending framework. When NBFCs and Banks combine their strong balance sheets through co-lending, everyone benefits.

The geographical reach of banks can be increased while they still meet their lending requirements for the priority sectors. The MSMEs, which can get financing more quickly and for a lower cost, are the real winners.

News Updated Date: 4th January 2023

Crisil Estimates MSME Credit to Grow 16-18% In the Forthcoming Fiscal Year

Working effortlessly on a broad-based economic recovery and robust, sophisticated balance sheets, now the lenders can expect their credit to grow at 15% at the start of the next fiscal year. A report was published on Tuesday mentioning the credit growth of the current fiscal to be around 18% which seems quite a decadal high.

So far, the large lenders are observing corporations lining up with banks for funds. These funds are required for capital expenditure and working capital due to the demanding side of the economy getting better. Following are some crucial facts according to the reports printed:

• The agency predicts credit growth to be attracted more by retail and MSME sectors, while corporate credit might see the larger contributor next fiscal.
• The MSME segment is estimated to get a reasonable hike rate of 16-18% over this fiscal and 2023 as well.
• While agriculture credit growth might hover around 10%, backed by fairly normal monsoons and harvest.
• In Q2, SBI had the best corporate loan sales in terms of 20% growth, and most other lenders are private sector banks.
• Bank credit is estimated to experience a growth of 15% per annum in the coming fiscal.
• The agency clarified that Crisil’s forecast is viable on an awaiting 7% GDP growth seen in this fiscal.
• They expect continual credit push from the infrastructure of government disbursement; greater working capital entails a high-inflation environment and few enhancements of debt capital market borrowings.
• After a substantial equity infusion, state-run banks might see higher growth.
• The state banks’ credit growth is reported at 12% over the 2021 fiscal year, which is still more scarce than the 17% expected for private banks.

A senior director at the agency, Krishnan Sitaraman, states that corporate credit having 45% of overall credit can fluctuate at a 2-year compounded annual growth rate of around 10-12% until March 2024.

Retail credit, consisting of 26% of the total advances, is estimated to rise the fastest at 17-19%, powered by home loans as the largest sub-segment rather than the increasing interest rates and real estate prices.

News Updated Date: 24th November 2022

Union Cabinet has increased the scheme outlay of ECLGS to Rs.5 lakh Crore

The Emergency Credit Line Guarantee Scheme was launched in the pandemic situation to help the small enterprises struggling with the decreased economy. The main objective of this scheme is to provide 100 percent guarantee coverage to Banks and NBFCs and it will help them to extend the emergency credit facilities to MSMEs and Business Enterprises. This scheme has been later expanded to incorporate more sectors. 

Due to disruptions in hospitality, the outlay of ECLGS schemes has increased. The outlay of the scheme has been raised to Rs. 5 lakh crores from 4.5 lakh crore.

The additional amount of Rs.50,000 crore is especially for hospitality and related sectors. This amount will be helpful for the Business enterprises to meet their operational liabilities. 

The add-on Rs. 50,000 crores will provide reassurance for the lending institutions to give an additional amount at a low cost. The validity of the ECLGS Scheme along with the additional amount is extended up to March 31, 2023.

News Updated Date: 24th August 2022

MSMEs to now get CIBIL score from SIDBI

In a bid to boost the credit culture among MSMEs, the Small Industrial Development Bank of India (SIDBI) is planning to give a CIBIL score to all MSMEs registered with it. This would help in better credit payback, and ultimately improve their business operations.As per the Central Bank of India, it will be mandatory to have CIBIL Score for MSMEs from January onwards. And this is a big step towards bringing transparency and accountability in the Indian system. All MSMEs are required to register themselves with CIBIL and get Score by next year.

The scheme of making MSMEs open to micro crunch funding and providing a CIBIL score for them to avail funds from the SIDBI is now on. This move is expected to benefit around 80 lakh MSMEs

News Updated Date: 09th August 2022

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