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Financing MSMEs? Look at the big picture, take holistic decisions

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While MSMEs seem like a large and homogeneous group, every business is unique, and warrants customised financing solutions for its specific needs.

The Micro, Small and Medium Enterprises (MSME) sector is a vibrant and dynamic component of the Indian economy. It contributes 45 per cent to the national industrial output, 40 per cent to India’s exports, and employs over 60 million people. MSMEs are undoubtedly a major contributor to India’s growth story. Their sheer size and scope make them the growth engine of our economy.

While several central and state initiatives attempt to boost the growth, competitiveness, and sustainability of this sector, there is a lot that companies can do to make the most of these schemes. This is partly because every industry, and their allied micro-industries, are unique. Their challenges are varied, and blanket solutions do not help mitigate deep-rooted challenges.

A recent Siemens Financial Services research has highlighted that lack of relevant skills and access to finance are the two major internal obstacles for companies trying to make a transition to Industry 4.0. Further, external factors such as demonetisation, GST implementation, and now e-Way bill require MSMEs to reinvent their business models.

This uncertainty means that businesses are forced to become more reactive and less proactive. A mindset which does not help the highly entrepreneurial SME-MSME space. These constrains result in lost opportunities, underperformance, and underutilisation of capacities. Entrepreneurs often share that equipment requirements can be unplanned. In order to fulfil a large order, capacities need to be upgraded almost instantly.

However, if entrepreneurs attempt to use their own money for expansion, they divert working capital to finance assets, which in the case of long-term assets is not desirable. What they need is a source of specialist finance that truly understands their business, not just their financials, and helps them speed up the order placement process by offering quick turn-around times.

Sunil Kapoor, CEO, SFS India, says, “Every business is different, and their challenges are unique to them. Hence, one should look at the big picture and take holistic decisions based on parameters like industry type, type of business, end customer benefits, etc. Owing to our deep understanding of the industry, its challenges, and the technical solutions, we believe that we are well placed to meet the needs of this sector.”

MSMEs need customised, collateral-free financing options like loans, leases and additional line-of-credit that suit their specific requirements. Financing a small or growing business enables it to upgrade or acquire advanced technologies, without adding to their cash flow pressures.

Since banks and other financial institutions rarely provide collateral-free finance, businesses are forced to use their existing credit lines, making them unavailable for other day-to-day requirements. This is where NBFCs can become an alternate financing solution partners who have the willingness and the skills to work with smaller companies to offer financing options tailored to their specific circumstances.

(Source: Siemens Financial Services Pvt Ltd)

Every business is different, and their challenges are unique to them. Hence, one should look at the big picture and take holistic decisions based on parameters like industry type, type of business, end customer benefits, etc.
Sunil Kapoor,
CEO, SFS India

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