These are the top challenges faced by MSMEs, the growth drivers of Indian economy

Sumit Agarwal

More than 500 Lakhs MSMEs exist currently and over the last 5 decades in India. This SME sector has grown dynamically contributing 45 percent of India's GDP according to 'Micro Merchant Market Sizing and Profiling Report' which also shows it provides employment to around 46 crores people in India and is growing at a fast rate of 11.5 percent every year. This MSME sector has enormous potential for growth in the coming years while eradicating poverty & unemployment, which is the biggest enemy of this nation.

In spite of the tremendous potential it promises, the nation's micro, small and medium businesses are plagued by various challenges.

One of the aspects holding down the MSME sector is their age-old inefficient methods of operating business and their inertia to adopt technology. As a matter of fact, analysis says SMEs can increase revenue by 34 percent relying on digital tools. For many good reasons, MSMEs need to foster innovation, manage their businesses digitally, accept e-payments, upgrade to technological tools and compete globally. Unfortunately, in India, many are still technologically immature, they dread thinking about the effort that goes into learning and using software. Even with the rapid adoption of technology in the country, many SMEs don't even possess basic computer literacy skills.In the hope to help SMEs become digitally literate, Govt initiated Digital India and Skill India. The focus of Digital India was to develop necessary digital skills in SMEs.

Furthermore, India being a multilingual country, language is the primary concern to adapt digital solution. Only 10 percent of India’s population can read english with limited proficiency. Especially Tier-2 and Tier-3 Indian cities is not an English-driven market.

It is also important to realise that this sector have tradition-bound lifestyle and suffer from a mindset problem as well. Their choices are by habits. Hardly few SMEs are open-minded about technology adoption. Positively, in recent times, user-friendly business softwares have been made available on Android platform trying to tackle such issues, it’s up to SMEs who should recognize this effort, take it up and make the right use of it.

Getting easy access to loans is another serious issue that hampers SMSEs growth. Not only do they need finance for day-to-day operations, but also to buy fixed assets, like land, building, plant, machinery, etc. Businesses cannot grow fast without adequate capital. Most SMEs are a result of peoples’ personal savings and on loans raised against their homes. Many are funded by family, friends, relatives, money lenders or informal institutions, who do not maintain proper accounts and deal in cash. For any business to grow, it needs a lot of working capital, it needs funds and for this, it depends mainly on banks for credits, which has never been easy. Since most MSMEs do not have hard assets, they do not qualify for bank loans and is looked upon by Banks & lending community with great doubt.

With the emergence and the growth of a new-class of Fintech firms, peer-to-peer lending and new-age digital non-banking financial companies, the MSME financing ecosystem is growing to address this key issue affecting the industry. Hopefully, SMEs will have the opportunity to get accessible and affordable financing options provided they have kept their financial papers clean. This again requires them to embrace technology in bookkeeping & keep accounts ready when the time arrives.
All in all, easing these challenges will go a long way in nurturing SMEs and help them perform better.

The author is the Founder & CEO of Vyapar - a Free Business Accounting, GST & Inventory App, solution aimed at simplifying business management and tax filing needs of small business owners.