A digital platform to provide quick and easy credit to the micro, small and medium enterprises sector can reduce paperwork and ease the flow of small-ticket institutional loans to such units, representatives of small businesses have said.
Union minister for electronics and IT Ashwini Vaishnaw had suggested the creation of a unified payments interface or UPI-like platform for providing quick credit to micro, small and medium enterprises (MSMEs). At the recent week-long Azadi Ka Digital Mahotsav, he asked if a “platform as powerful, as good, as seamless and as digital as the UPI platform for providing very quick and easy credit to the MSMEs and people who are at the bottom of the pyramid” could be created.
A digital platform is a good solution and it can be done in many ways, Federation of Indian Micro, Small and Medium Enterprises (FISME) secretary-general Anil Bhardwaj said. The MSME sector was very diverse and the requirements for credit vary. Some units may need a small loan of Rs 50,000, while some others may need Rs 5 lakh or more, he explained. “Based on certain parameters and documents such as a PAN card and Aadhaar, some loans can be extended for self-employment where not much paperwork is needed,” Bhardwaj told Moneycontrol.
“It is workable only for loans of small ticket size. For larger loans, banks would need to follow their process,” Bharadwaj added.
Small businesses are facing a liquidity crunch as banks are reluctant to lend to them due to uncertainty about the repayment capabilities of these units and the fear of these loans becoming non-performing assets, industry associations told Moneycontrol.
What also works against MSMEs is that many of them are out of the ambit of the goods and services tax net and do not have adequate documentation required for accessing institutional credit. As a result, they are forced to borrow from lenders outside the formal system at high interest rates.
“All banking transactions involving less than Rs 2 crore should be made faceless,” said Vinod Kumar, president, India SME Forum. “It should be like a faceless tax assessment.” He added that bankers at the ground level refuse loans 90 percent of the time where they are allowed to use discretion. “MSMEs are denied funds even when they have the right documentation and are forced to get a recommendation or move to the informal channel,” Kumar said.
MSMEs face a huge credit gap—the World Bank pegs this at a collective $380 billion—even though they are entitled to bank finance under priority sector lending norms.
All India Council of Association of MSMEs member R. Ramamurthy said a digital platform for lending would be welcome as it would cut down the lengthy verification process and provide funds quickly.
However, D.P. Goel, co-chairman, MSME committee, PHD Chamber of Commerce, was not confident that a digital platform would ease credit flow to small businesses. He said: “Banks may make a digital platform but the MSMEs are not so technically advanced so how will they access it to get loans? Further, no bank will give credit without doing the verification. If they start giving loans like this, they will incur huge losses.”
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