Catalysing MSME entrepreneurship in India: A KPMG-IMC Report

Different sources of capital are used by MSMEs across their lifecycle, and the traditional banking system still forms the largest source of financing. The last few years have seen a paradigm shift affecting the MSME financing ecosystem. We are seeing alternative sources of capital coming into existence and increasing reach, including crowd funding, online marketplaces, new age digital Non-Banking Financial Companies (NBFC), venture debt companies, etc. FinTechs have grown rapidly in this space as well, and are offering innovative solutions both for lenders as well as offering solutions addressing challenges faced by MSMEs. This new breed of lenders has emerged to address the need gap of micro and small businesses for financing. Ease of access to funding sources is something the new age MSMEs are looking for, and FinTech firms have hit the right chord by addressing this need.

Key aspects covered in the report:

Need for creation and strengthening of the ecosystem of small businesses – This will have many positive influences on skilling, employment, wealth creation and overall nation-building

• Implementation of theGST Bill to benefit MSMEs not only with simpler tax structure but also with aspects such as improved technology adoption to comply with GST system
• MSME landscape in India – Contribution of MSME sector to the country’s GDP, various employment opportunities, sector and state-wise segregation of MSME companies: Manufacturing contributes 45.5% & Maharashtra has the largest – 26.77  % of MSME companies
• Regulatory Framework – MSMEs believe that regulations are complicated and not standardised across state - Taxation rate is high, competition with big brands causes high capital need especially during the formative years and it is very difficult to get quality and skilled people as well
• Key challenges faced by the players in the ecosystem - Low credit limit and high interest rates offered by banks and NBFCs becomes a limiting factor for MSMEs to avail loans
• Positive impact of technology on MSME sector – Impact of internet and mobile penetration, benefits of the e-commerce platforms for MSMEs
• Rise in Innovative fintech solutions to support the growth of small businesses - Fintech solutions based on cloud, alternate scoring models, big data and blockchain, can drastically change the way banks function by introducing agility, a connected operating model and reduced cost structure.

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