There has been a marked increase in credit to the MSME sector after the government changed the definition of micro, small and medium enterprises, in 2020, according to Sanjay Gupta, General Manager, Small Industries Developmenmt Bank of India (SIDBI).

Gupta was addressing a panel discussion by businessline on ‘Financial and Liquidity needs of MSME Sector’, as part of its flagship MSME Growth Conclave on June 27, observed as International MSME Day, in Bengaluru. The speakers, along with Sanjay Gupta, included Ashish Jhina, Co-Founder and COO of Jumbotail and Abhiroop Medhekar, Co-founder and CEO of Velocity. The panel discussion was moderated by Aarati Krishnan, Consulting Editor, businessline. 

“Our loan and advances portfolio which was lower than ₹1 lakh crore, some time in FY20, we ended our balance sheets of assets loans, advances of ₹4,50,000 crore.” 

Change in definition

This change in definition has enabled MSMEs to now come forward and ask for the loans from bank and financial institutions, without fearing that they will lose the benefits of MSMEs, Gupta said.  

However, he admitted that the MSMEs funding gap is huge, approximately ₹25 lakh crore, and their financial needs are quite diverse. He cited that MSMEs, particularly micro and small enterprises, do not have a credit history and there is also collateral issue.  

Gupta pointed out that the shift from asset-based model to cash flow-based financing model would also help lessen the credit gap. 

Abhiroop Medhekar, Co-founder and CEO of Velocity, said “MSMEs have a good viable business which has cash flows. So, the financial model needs to move to a cash flow model.” 

‘Jai Dukan’

To illustrate this, Gupta said that SIDBI had made lending easier by automating it — once the MSME borrower supplies details such as GST returns, IT returns and bank statement — the algorithm takes a lending decision, providing loans up to ₹3 crore almost instantly. 

Ashish Jhina, Co-Founder and COO of Jumbotail, a business which helps kirana stores transform to omni-channel grocery store, cited the challenges of underwriting, collections and repayments. “We are in a much faster paced world; the pace of the underwriting also has to constantly be underwritten and datasets must be real-time. There is a need to constantly evaluate, and understand on the basis of large parameters.”   

Jhina said that time had come to expand the 1960s catch phrase ‘Jai Jawa, Jai Kisan’, by including ‘Jai Dukan’.