• Session - I: Policy – An architecture that works
  • Session - II: Technology – Is FinTech the silver bullet?
  • Session - III: Capital – Bridging the SME financing gap
  • Session - IV: Wrap-up Session
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In the light of a positive political and economic scenario, India is on a growth path to becoming one of the leading economies in the world. The Micro, Small and Medium Enterprises (MSME) sector, acknowledged as the backbone of our economy, is expected to play a significant role in this growth and its contribution to the GDP. A report by KPMG India, looks at the levers of capital, technology and policy currently impacting MSME financing in India, how they are changing the ecosystem and the possible way forward.

The definition of micro and small enterprises differs from country to country. The definition reflects the business environment and socio-cultural aspects of a country. There can be various thresholds to define a micro and small enterprise such as investment expenditure sometimes differentiated on the basis of industry, annual or average turnover, number of employees, etc. The current definition of MSMEs in India categorises them based on the capital investments i.e. investments in machinery and equipment whereas definitions in other countries look at other aspects. There are various regulatory policies and schemes in place and the thresholds for applicability vary depending on the law. While there are efforts at targeting the MSMEs with these policies, many of them are still unserved or underserved.

Different sources of capital are used by MSMEs across their lifecycle, and the traditional banking system still forms the largest source of financing. These lenders have been traditionally reluctant to address the needs of this segment due to low ticket sizes and higher risks and costs involved. The MSME segment has also been unserved and underserved due to the lack of collaterals and infrastructure, poor financials and the lack of data to assess credit worthiness.

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 the fintech firms have hit the right chord by addressing this need.

Additionally, we are seeing innovative solutions in assessing credit worthiness using technology, analytics and alternative sources of data. The rise of e-commerce and m-commerce in India has also given a positive boost to the SMEs contributing to their growth and expansion.

While there is a positive impact of the new-age technology and capital changes, the policy and regulatory reforms need to be further strengthened and new policies need to be introduced.

A report by KPMG India looks at the way forward to give a boost to MSME financing in India based on the pillars of conducive regulatory policies, use of innovation and leveraging technology.