Even in Crisis, Opportunities Abound for MSMEs

The ongoing COVID-19 pandemic has affected more than 150 countries, destroying lives, stalling economic growth and disrupting international trade & business. The Micro, Small and Medium Enterprises (MSME) sector in India has been one of the worst-hit in this calamity. This sector is ~64 Mn strong, many of which are in semi-rural or rural areas and employs close to 120 million people.

With the Government’s ‘Atmanirbhar Bharat’ initiative and support to the MSME sector with manufacturing and import substitution sops, opportunities are galore for businesses of all sizes to flourish.

Reducing import dependency on China
The call for a self-reliant Bharat and the stress on being “vocal for local” has opened up the possibilities for a larger demand for locally manufactured goods. The intention to reduce import dependency on China and the need to diversify our supply chains, coupled with the recent trend of going into manufacturing rather than largely services by MSMEs, signals a sizeable opportunity for seize here, especially in sectors like auto components, iron & steel, pharmaceuticals, textiles, plastic, furniture and toys, where the potential market size for domestic demand is significant. It will likely take a few years to gain the right competencies and for the results to show, but now is the time to make a start!

Renewed focus on solar manufacturing
India’s heavy dependence on China in solar energy, with 80% of the domestic demand for solar cells and modules being met by Chinese imports, received a rude jolt due to the pandemic, when installations were severely disrupted. This has led to renewed focus by the Government on expanding domestic solar manufacturing capacity to ensure energy security for the country. We have so far been manufacturing cells, modules, ingots and wafer, but now we need to go beyond that and also start manufacturing other ancillary equipment like backsheets, glass, inverters, transformers and cables, among others. This will enable us to cater to an entire ecosystem of renewable energy. Exports could form another pillar of this enterprise. GoI is considering setting-up new export hubs focused on renewable energy equipment opening huge opportunities for scale in this segment.

States setting up Manufacturing SEZs
Most states have plans in place to develop new manufacturing SEZs to give the sector a boost. Karnataka, for example, has identified industrially backward districts and tier 2 and 3 towns to develop MSMEs. Relaxations similar to the IT/ITeS industry are being provided to Manufacturing SEZs, to encourage manufacturing exports.

Digitization of MSMEs – Cloud and SaaS-based business processes
Adoption of technology will be a key factor in ensuring MSMEs’ future success and open up new vistas of growth for them. The pandemic has accelerated the adoption of digital sales channels and the digitization of MSMEs is a welcome trend that is here to stay. In almost every area of operation, be it book keeping and accounting, taxes, payment receivables and payables, Cloud and SaaS technologies can be leveraged to improve efficiencies and productivity. This is already happening, with many home-grown tech players using SaaS models to ease the business service pains of MSMEs. India was already a leading adopter of FinTech globally; the COVID-19 pandemic is now pushing larger numbers on to this bandwagon and helping them become future-ready.

Adoption of cloud-based technologies will help MSMEs reduce costs, increase information visibility and therefore improve decision making, and enhance worker safety – a critical area for compliance & governance in future especially in context of social distancing, contact tracing and ensuing timely interventions.

Advent of e-marketplaces for MSMEs
B2B e-marketplaces for MSMEs are gaining wider acceptance among buyers and sellers, which have also prompted the Government and the largest bank in India, SBI to enter the space. . It is a watershed moment in India’s B2B e-commerce, similar to the likes of Alibaba’s success story when China went into its manufacturing spree and internet penetration was at historical highs . Many forward-thinking MSMEs are integrating with such e-marketplaces, preferring to have an omni-channel presence in these times of social distancing and contactless, digital transactions.

The benefits that MSMEs reap from using these e-marketplaces are diverse –connecting with large networks of customers and suppliers, financing and business processes automation, and establishing a credible digital footprint; enablers for MSMEs to become future-ready.

Developing partnerships and local networks
There is a strong need to develop localized services and local networks across the country to enable the Government to expand economic hubs beyond tier 1 cities. MSMEs have an opportunity to actively shape this through forging partnerships with big players – including foreign entities looking to set-up low-cost manufacturing bases and pay a premium for hyperlocal data and specific knowledge of micro markets that MSMEs possess.

The next phase of growth for India will clearly be defined by MSMEs that stay abreast of trends and are willing to reimagine their businesses and evolve.

Digital Marketing: 5 Simple Steps to Increase Visibility & Connect with Retail Customers

By Pankaj Nawani – Product Head

One of the best managers I have ever worked with, a man who is credited with creating a powerhouse financial services firm from virtually nothing was very fond of a particular quote- “Small strokes fell great oaks”. Big outcomes do not necessarily come from seemingly big actions. More often than not they are a result of repeatedly doing small things right. And these words are true for the digital future of our small businesses too.

Due to the recent COVID-19 lockdown my mother-in-law, has been stuck in Pune (where I live) for the past few months. Not knowing local shopkeepers and chemists, she found a nearby pharmacy on Google for her monthly supply of medicines and since then gets them delivered by the store on time every single month. Since the supply was regular and there were no complaints, I never gave the arrangement a second thought, till yesterday when I saw that the pharmacy, she ordered from is nearly 6 km away from our home! I was surprised that the search skipped 20 other pharmacies enroute! How did this happen and was it a one off? I made some enquiries with other people and found that this particular pharmacy makes at least 2 deliveries to our housing society every day. With an average order value of Rs 3000 per delivery, the pharmacy is earning at least Rs.2 lakh per month from one housing society alone. Astonishingly, he doesn’t play the price game either to woo his customers! Then what accounts for his popularity? Here are the reasons –

1. Understand search marketing & how you rank on it: Most small business owners do not understand search marketing. Their view is that being listed on Google with their phone number alone should suffice. It doesn’t work that way. You have to make sure that your listing is 100% (working phone numbers, photos of your store, correct location etc). Most business owners do this listing as a one-time exercise and don’t update.

2. Have a social media presence for your business. What’s seen is what’s sold: You might think having a small website, Facebook page or a twitter account is a fad, but your customer is present on these platforms and so should you. It helps your customers remain in touch, establish credibility for your business and also helps you build more authority. Put simply the more you are present online, the more you’re searched & talked about by your customers, the better your chances of discovery on a Google search wrt. your competition.

3. Invest in a CRM system. Don’t ask the customer the same question twice: Who is your customer, what does she order and what is her desired frequency of delivery. It will help you not only be in constant touch but also cut down the cost of doing business. It does not take much to update your simple excel worksheet and set reminders on the same. There are shopkeepers who do this on nothing more than pen and paper. While the age-old system works, your customer’s behaviour is changing towards expecting flawless service at the click of a button, your business should adapt quickly to the change.

4. Customer Testimonials are important. Actively seek them out: In today’s world nothing gives more legitimacy to your business than customer testimonials and ratings. This is something that you need to be actively promoting. Make it your goal to get a couple of good testimonials per week. Conversely be very aware of negative comments on your business. Do everything you can to make sure that the customer complaint/feedback is not only addressed but also seen to be addressed. Your reputation is very important. Enhance it and guard it with all you have.

5. Create interesting content: No matter how boring you think your business is, there are always things that customers don’t know about your product and which if told to them, is likely to be appreciated. Put that content out, gather feedback and improve. I still recall how a juice seller showed me how to peel a pomegranate and pick the right watermelon. It’s been 12 years since then and I still remember him fondly. Make your trade knowledge more accessible to your customers and they will appreciate it. Repeat the process and over time you will have a repository which will put you far ahead of your competition.

History of Indian Handloom

The beauty and variety of Indian handloom is legendary. The texture and colour with the most intricate of woven patterns and embroidery can leave most anyone spellbound. As we celebrate India’s rich history of handlooms on National Handloom Day (August 7), let’s take a look at the checkered history of this celebrated craft that is still standing strong in the face of many challenges and delighting textile aficionados the world over.

Archaeological evidence traces the beginning of handloom in the Indian sub-continent back to the Indus Valley Civilization. Subsequent Aryan settlers in the region also adopted and further honed techniques of weaving cotton and wool followed by embellishing these fabrics with dyes and embroidery. Spinning, weaving, dyeing and other textile related artforms gave rise to a flourishing cottage industry. The Indian handloom industry while being driven at a household level also found growing adoption across the world. Indian cotton and muslin fabrics were traded with the Roman Empire and Indian silk traded through China via the Silk Route to western countries. Indian textiles have been praised in several accounts by explorers and historians, from Megasthenes and Herodotus to Marco Polo.

The advent of the Mughal empire saw weavers getting patronage from the royalty and creation of new fabrics such as ‘Mulmul’, ‘Benarsi Brocade’, ‘Jamawar’ etc. As the Mughal empire expanded its boundaries, so did the Indian handloom industry with weavers from Kashmir and Persia contributing their share.  Demand for Indian textiles grew by leaps and bounds as the world marveled at the mastery of Indian weavers. India was manufacturing 25% of the world’s textiles in the 17th century, Bengal accounted for more than 50% of textiles and 80% of silks imported by the Dutch from Asia.

The arrival of the East India Company, however sounded the death knell for the Indian textile industry.  The weavers were forced into selling exclusively to the British at extremely low rates, pushing them into poverty. The taxation structure also benefited textile imports into India from Britain versus Indian exports. The decline was further accelerated by the industrial revolution. Advances in manufacturing technologies flooded markets in India and abroad with cheap, mass produced fabrics that Indian handlooms could no longer compete with.

The freedom struggle brought the Indian handloom sector back to the fore, with Mahatma Gandhi spearheading the Swadeshi cause. In no other nation has something as basic as one’s clothing or an act as simple as spinning cotton become so intertwined with a national movement. The humble charka (spinning wheel) and khadi became a dominant symbol of self-reliance, self-determination and nationalist pride.

Post-independence, the Government of India took several steps to revive the handloom sector. Parliament of India passed the Khadi and Other Handloom Industries Development Act in 1953. The All India Handloom Fabrics Marketing Cooperative Society was set up in 1955 to promote sales of fabrics made in handloom cooperatives. Several other institutions were also set up like the Weavers’ Service Centre, the Indian Institute of Handloom Technology and the National Handloom Development Corporation (NHDC), to name a few. The credit for the revival of handlooms in India also goes to pioneering individuals like Suraiya Hasan Bose, Pupul Jayakar and Laila Tyabji.  Designers like Ritu Kumar, Sabyasachi, Sanjay Garg and others have also given much needed exposure to handloom weaves not just in India but across the world.

The Indian handloom industry today employs over 4.5 million people, both directly and indirectly, and is the second largest employer for rural India next only to agriculture. There are about 2.4 million looms of different kinds. The export of handloom products from India was valued at US$ 343.69 million in FY19. In FY19, the US was the major importer of Indian handloom products, with an estimated purchase of US$ 93.94 million, followed by the UK, Italy and Germany at US$ 17.77 million, US$ 16.47 and US$ 14.65 million, respectively. Nearly 15 per cent of cloth production in India is from the handloom sector. Production of hand-woven fabric from India constitutes 95 per cent of the global production. While the numbers seem impressive, the handloom sector is still plagued by problems. Low wages, rising costs, rise in power looms and proliferation of fakes are some of the issues that weavers have to contend with. New initiatives by the Textiles Ministry along with private entrepreneurship will hopefully help the Indian handloom industry regain its prominence.

 

SOURCES: https://www.ibef.org/exports/handloom-industry-india.aspx

Time to Go Beyond UPI and help Digital Transactions Grow with UPI 2.0

By Nitin Mittal

UPI 2.0 has the potential to accelerate and drive change at a much faster rate. The challenge that NPCI has taken to expand the service beyond smart phone users to the 500 million-strong feature phone users in India, will help new avenues openup for industries like E-commerce, Travel & Hospitality, Health-care and in particular the Micro-merchant& Retailer segments across the country.

India’s focused on-ground implementation of the Aadhaar program paired with Jan Dhan Yojana is a massive asset which has doubled India’s banked population to 80% by 2017, starting from 2011. Bolstering this powerful mix is theUnified Payments Interface (UPI) introduced byNational Payments Corporation of India (NPCI)in 2016, which allowsfor full-scale interoperability and instant real-time transfer of funds through a mobile number associated with a bank account.

With the COVID-19 pandemic posing unprecedented challenges to micro & small businesses, digitization of payments systems, especially availability of UPI,is proving critical in facilitating immediate access of contactless funds to rural and urban customers alike and helping them buy essentials from merchants. The month of May 2020 alone saw a billion plus UPI transactions and millions of person-to-merchant (P2M) transactions as customers’ inclination to use QR-code based payments rather than cash and cards at retail outletsincreased manifold. This rapidly evolving trend negates the need for erstwhile point-of-sale machines and allows for massive savings in physical distribution, servicing and collection efforts that were previously undertaken by banks.

UPI has proven its worth and benefits. Given the current situation, it is now time to evolve to the next level in this journey and welcome UPI 2.0.

UPI 2.0 has the potential to accelerate and drive change at a much faster rate. The challenge that NPCI has taken to expand the service beyond smart phone users to the 500 million-strong feature phone users in India, will help new avenues openup for industries like E-commerce, Travel & Hospitality, Health-care and in particular the Micro-merchant& Retailer segments across the country.

In 2019, the Central Board of Direct Taxes (CBDT) issued a notification which ordered companies with a turnover of more than ₹50 crore to include the Unified Payments Interface (UPI) and RuPay debit cards as payment methods. It was a firm step ahead in bolstering digital payments in India.A lacuna in the guidelines, however, was evident in the unavailability of a recurring payments option.The upgraded version of UPI resolves this by allowing for a one-time mandate with block functionality wherein customers can pre-authorize a transaction and paylater on a pre-decided date which could be harnessed by e-commerce players both for B2B and B2C transactions for payment on successful delivery.

Individual users and small merchants will benefit tremendously from these features, as mandates are generated instantly, and payments get deducted automatically on the authorized date creating a ‘pay-later’ feature of sorts for the customer.

So far, users were able to link their savings and current accounts to UPI. UPI 2.0 allows users to access their overdraft accounts, offering need-based, short-term credit facilities with the transaction limit also now doubled to INR 2 lakh.To reduce the physical collection efforts of the BFSI industry, UPI 2.0 can add a significant push to the digital collection of small-ticket loans by running cyclical processes for collection request generation. Auto-generated EMI statements with collection requests can be sent for customers’ verification, post which the customer can authorize the transaction for instant EMI repayment.

Interestingly, the new UPI 2.0 also features additional security for customers. The upgraded construct allows for the dispatch of online invoice to the customer from the merchant, hence transferring the power of ‘verification of order & amount’ to the customer before paying the merchant. Also, to improve authenticity of transactions and merchants registered with the UPI ecosystem, customers can check the authenticity of merchants while scanning the merchant’s QR code, limiting the possibility of fraudulent transactions.Digital invoicing at micro-level will also allow for aggregation and analysis of data at merchant level and provide invoice financing solutions.

With the COVID-19 ‘new normal’ here to stay and innovative solutions like UPI set to be launched on feature phones, India will move closer to its 100% financial inclusion dream and accelerate the growth of thousands of micro-entrepreneurs across the country.

There is evident need to fast-track the adoption of UPI 2.0. As of now, UPI 2.0’s certification is still underway, and PSPs are yet to implement it. Considering the fast-paced nature of technology development and the importance of a robust & novel payment system like UPI especially for micro and small merchants, the government must facilitate a faster rollout of technical specifications with stakeholders like NPCI, PSPs and banks and accelerate the implementation, reach and adoption of UPI 2.0.

Article first published on: https://bfsi.economictimes.indiatimes.com/blog/time-to-go-beyond-upi-and-help-digital-transactions-grow-with-upi-2-0/4388

Digital transformation – a need for MSMEs

The Micro, Small and Medium Enterprises (MSMEs) sector has traditionally been the backbone of our economy. However, over the past few years, the MSME sector has started confronting some challenges, including country’s shift to GST tax regime, lack of technological knowhow, inefficiencies in supply chain and difficulties in availability of funds.

Since businesses aided by technologies deliver better products and services, and save time and money, technological advancements play a critical role in shaping businesses.

This brought to light the need for MSMEs to adopt digital technology enabled platforms as a solution to challenges being faced by these firms. To support this, the government has launched the Digital MSME scheme in 2017, that involved providing training to MSMEs and enable them to overcome the hurdles in digital transformation.

Digital Transformation is a new force that has fundamentally changed how MSMEs operate and deliver value to customers. It has led to smart integration of digital technologies, processes and competencies across all levels and functions.

digital-transformation-(image-1)

Benefits

 

MSMEs must embrace digital tech to stay afloat

The micro, small and medium enterprises (MSMEs), which have borne the brunt of the COVID-19 pandemic should embrace digital technologies to stay in business and emerge competitive in the post-COVID world.

MSMEs must transform the way they function to be able to continue to produce goods and services during this turbulent time. This can be done by adopting technologies which will not only allow MSMEs to reduce onsite labours but also help them to control their process digitally.

That’s because digital transformation makes businesses more transparent and efficient. It provides opportunities to enhance the customer satisfaction and build great working environment. Resultant, MSMEs can accelerate growth, optimise operations, and create value across organisation. Also, it helps small businesses embrace new technologies to improve their manufacturing process and improve ROIs.

benefits and barriers

 

Digital trends in the COVID scenario

Customers are willing to shop online for categories like accessories, appliances, apparel and footwear, OTC medicines, snacks, electronics, groceries, etc. Approx. 14% consumers across these categories switched across brands for the convenience of online shopping, with a 50% intent to continue.

This highlights the importance of bringing your small business online, and taking your offerings to customers who are getting accustomed to shopping online.

In addition to this, there is a rise in adoption of digital sales channels, which implies that digital interactions will hold greater importance instead of traditional interactions in the post COVID world.

 

Survey States:

According to a survey conducted by an IT company Endurance International Group (EIG), about 30% of MSMEs started a business website or enabled e-commerce functionality since the lockdown started owing to the COVID-19 pandemic. More than 50% of MSMEs started using video conferencing tools and WhatsApp to keep business running.

MSMEs are going Digital with India’s trusted B2B platform. Know more.

Silk Map of India

Silk in the Indian subcontinent is a luxury good that carries a long history. Archaeological discoveries in Harappa and Chanhudaro hint towards sericulture present during the time of the Indus Valley Civilization (dating between 2450 BC and 2000 BC). However, certain evidences found for silk production in China dates to around 2570 BC.

Let’s have a look at the Silk map of India, but before that,

Some Quick Facts:

  • India is the second largest producer and the largest consumer of silk in the world after China.
  • About 97% of the raw mulberry silk comes from six Indian states, namely, Andhra Pradesh, Karnataka, Jammu and Kashmir, Tamil Nadu, Bihar and West Bengal.
  • Mysore and North Bangalore are the upcoming sites of a $20 million Silk City.
  • Emerging silk producing districts in Tamil Nadu are Salem, Erode and Dharmapuri.
  • Hyderabad, Andhra Pradesh, and Gobichettipalayam, Tamil Nadu, were the first locations to have automated silk reeling units in India.

Silk Map

Care in Crisis: Precautionary steps to be taken by small business owners against COVID-19

During these unprecedented adverse times, the focus of SMEs should remain on staying safe, supporting their customers to keep the wheels of earning turning.

The novel Coronavirus has forced the entire world to adapt to change quickly. After a considerable lockdown period, workplaces in India are taking a large number of precautions for their employees in the unlock phase.

COVID-19 pandemic has put the spotlight on the renewed need for hygiene and overall facility management to deal with new set of challenges.

While large businesses have the infrastructure and funds to put safety facilities in place, it is the small businesses that face the existential threat and cannot remain closed for long. They are often financially fragile, with little cash or resources.

For small businesses to resume operations, and once again serve as an engine to economic growth, they need to take some precautionary measures for the safety of their staff.

  1. Sanitization and regular cleaning of offices, factories, restaurants, shops, or business facilities is important. For this, following cleaning and disinfecting measures can be followed:
  • Wear disposable gloves to clean and disinfect.
  • Clean surfaces using soap and water, then use disinfectant.
  • Practice routine cleaning of frequently touched surfaces.
  • Surfaces and objects in public places that are touched frequently, such as shopping carts and sale counter keypads should be cleaned and disinfected before each use. Apart from this, high touch surfaces at workplaces include railings, tables, doorknobs, light switches, countertops, handles, desks, phones, keyboards, toilets, faucets, sinks, etc.
  • While disinfecting hard surfaces, keep solution on the surface for at least 1 minute.
  • Electronic equipment at the workplace, such as tablets, keyboards, remote controls, and ATM machines should be wrapped with a wipeable covering.
  1. Make sure that you staff washes their hands at regular intervals, wears gloves and masks, especially if they are facing customers.
  1. Seating arrangement at your facility should be such that two employees have at least 6 feet distance. For shops and stores, ensure that your staff is available for assistance, and customers touching the products is minimal.
  1. Ascertain that the clothes or uniform worn by your staff is washed and sanitized every day, and their temperature using infrared thermometer is checked before they enter the facility.
  1. If your staff is delivering goods to households, practice a no-contact delivery, wherein the delivery executive should be advised to keep the goods at a distance for the receiver to pick them up.

However, disinfecting the more-exposed surfaces is just not enough. Exercising easy communication to educate workers about identifying the symptoms of COVID-19 is equally important. Explain the importance of washing hands, wearing masks and gloves, and cooperating with ASHA workers who visit the house or store to conduct tests for coronavirus symptoms. Also, instructions on what to do if they develop symptoms within 14 days after their last possible exposure to the virus must be provided.

On Premise precautions

It cannot be denied that one of the prime sources of exposure to COVID-19 for small business owners could be their buyers, sellers, or supply chain staff. It needs to be understood that it is not just one person but the whole ecosystem at the back end around the individual, which consists of their family who have to be safeguarded.

To do this, business owners can take the below mentioned steps:

  • Monitor delivery and supply chain staff: Temperature check or thermal-scanning before entering the facility should be made mandatory for staff and customers.
  • Protective gear: Masks and hand gloves must be worn by the staff that is into customer facing roles. Customers must also be asked to wear masks covering their nose and mouth. Also, shoe covers should be provided to the customers while entering the malls, marts or supermarket.
  • Sanitization booth: A supermarket or a mall that allows customers to help themselves should install sanitization booth with foot pumps for people to pass from or place contactless sanitizer dispensers in order to minimize the spread of virus. Also, a PPE clad security person can be appointed to ensure that people are adhering to the guidelines, post which, used PPEs should be responsibly disposed.
  • Social distancing: Healthy distance of at least 4 to 6 feet should be maintained from the customer by creating a sealed area right in front of your counter/sales staff facing spaces.
  • Make Arogya Setu App installation mandatory for people entering your premises: Aarogya Setu App is a COVID-19 tracker launched by the Government of India. It keeps the user informed if they have crossed paths with the positive COVID-19.
  • Promote online payment: Instead of using cash for receiving or making payments, modes of digital payment like mobile banking, internet banking, cards, etc. should be encouraged.

Precautions while dealing with customers

SOLV Partners With Standard Chartered Bank to Launch MSME Credit Card

The Standard Chartered powered SOLV MSME Credit Card empowers owners of micro, small & medium businesses with short-term working capital, helping them manage the impact of COVID-19 led slowdown

Bengaluru, June 26th, 2020:  On the occasion of International MSME Day, SOLV, a B2B digital platform for Micro, Small and Medium Enterprises (MSMEs), announced the launch of a credit card tailor-made for the MSME segment, in partnership with Standard Chartered Bank, India. The SOLV MSME Credit Card provides business owners with a ready means to meet ongoing business expenses including supplier payments, fuel, logistics, purchase of raw material, utility payments and others working capital outlays, in addition to also leveraging multiple benefits of the SOLV platform that helps small businesses trade goods with each other and expand their customer base across India.

Amidst the COVID-19 slow-down led cashflow issues that MSMEs are facing, SOLV MSME Credit Card is unique in its timing and host of customisation that allows for short-term revolving credit availability for small businesses and is supported by a leading multinational Bank in India.

The SOLV MSME Credit Card doesn’t charge any joining fee to the MSME, and is packed with cashback and reward features tailored for the MSME sector. With this one-of-a-kind credit card, MSMEs can also offset losses due to fuel price hikes by enjoying a 5% cashback on fuel transactions; effectively making more than two litres of petrol free for them on a fuel spend of Rs. 4000 every month.  Additionally, micro & small businesses can strengthen their digital credibility, which is fast becoming a must-have for success in the current business environment.


Commenting on this partnership, Jinesh Shah, MD & Head, Alliances, Partnerships and Mortgages, India, Standard Chartered Bank said, “The Bank firmly believes that MSMEs are the growth engine of the country and will propel India‘s next wave of development. We are committed, along with SOLV, to help the MSME sector realise its full potential. SOLV’s mission to enable MSMEs digitally and find innovative solutions for their challenges progresses further with the introduction of this affiliate credit card and we are happy to partner with them in this important initiative.”

Speaking about the SOLV MSME Credit Card, Nitin Mittal, CEO, SOLV said, “The SOLV MSME Credit Card is another step in our continuous endeavour to help MSMEs overcome their growth challenges. This credit card will help small business owners tide over immediate crises such as paying for daily expenses and logistics costs with ready access to funds from a reputed, reliable partner at an affordable rate. In the long run, it will empower them to do much more with their businesses by giving them the freedom that comes with having enough liquidity at one’s disposal.”

International MSME Day 2020: Navigating the ‘New Normal’ Together

Small businesses play an important role in the economy. Not only do they outnumber large firms considerably, but employ vast numbers of people as well. The International MSME day was initiated in order raise awareness about the importance of supporting the development of small and mid-sized businesses in developing countries.

Definition of an Indian MSME:

An independently owned and operated enterprise that is created for profit and sells products that are needed by customers in the local market is referred to as an MSME (micro, small and medium enterprise), which in Hindi translates to लघु, छोटे और मध्यम व्यापार.

On 13th May 2020, Finance Minister Nirmala Sitharaman added additional criterion of turnover along with investment to define enterprises as MSME. This definition was announced under the Atmanirbhar Bharat Abhiyaan to facilitate MSMEs to grow in size and help them deal with the difficulties brought upon by the pandemic and the ensuing lockdown.

The definition, however, got further revised on June 1, 2020 on representations that the revision is still not in tune with the market and pricing conditions and should be revised upwards. As per the revised definition, medium enterprises got redefined as businesses with up to ₹50 crore in investment and up to ₹250 crore in turnover.

This step will help attract investments and create more jobs in the MSME sector. The following table provides details of the revised limits:

CategoryOld CapitalOld TurnoverNew CapitalNew Turnover
Micro₹25 Lakh₹10 Lakh₹1 Crore₹5 Crore
Small₹5 Crore₹2 Crore₹10 Crore₹50 Crore
Medium₹10 Crore₹5 Crore₹50 Crore₹250 Crore

Why is MSME day observed?

Observed on the 27th of June every year, the International Micro, Small and Medium Enterprises (MSME) celebrates the magnanimous contribution of smaller companies in construction of the foundation and growth of the global economy.

History

In 2017, to recognize the importance of micro, small and medium enterprises in promoting innovation, creativity and employment for all, and to root for achieving the 2030 Agenda for Sustainable Development (focusing on people, planning and prosperity), the United Nations General Assembly declared 27 June as International MSME Day.

Significance of the MSME sector

Micro, Small and Medium Enterprises (MSMEs) play a major role in most economies, particularly in developing countries. They represent about 90% of businesses and generate employment for more than 50% of the world’s population. Moreover, MSMEs contribute up to 40% of the national income (GDP) in developing economies and create 7 out of 10 jobs worldwide. But what hinders MSME growth is access to finance. It cannot be denied that MSMEs largely depend on internal funds, or cash from friends and family, to launch and run their enterprises rather than opting for bank loans. The International Finance Corporation (IFC) estimates that 65 million firms, or 40% of micro, small and medium enterprises (MSMEs) in developing countries, have an unmet financing need of $5.2 trillion every year. The prominent MSME markets are East Asia And Pacific, Latin America and the Caribbean, Europe, and Central Asia.

Source: www.worldbank.org

The MSME Landscape in India:

  1. There are 42.50 million, registered & unregistered MSMEs in India, this accounts for a staggering 95% of the total industrial units in the country.
  2. MSMEs in India employ about 106 million people, that is, 40% of India’s workforce – second to the agricultural sector.
  3. Indian MSMEs produce more than 6000 products.
  4. They currently contribute around 6.11% of the manufacturing GDP and 24.63% of the service sector GDP.
  5. MSMEs produce 45% of the total Indian manufacturing output.
  6. MSME exports are approximately 40% of total Indian exports.
  7. MSMEs account for 16% of bank lending and their fixed assets total ₹1,471,912.94 crore.

Source: msme.gov.in/KPMG/CRISIL/CII

Stimulus packages for MSMEs from across different nations

The Covid-19 relief package for micro, small and medium enterprises are aimed at liquidity infusion at this juncture. Here are the top 5 countries that have announced stimulus packages for MSMEs to help them tide over the COVID-19 lockdown-induced crisis.

Japan: The 31.9 trillion yen budget will fund a 117 trillion yen ($1 trillion) economic stimulus package, that will help fight the economic impact of the novel Coronavirus pandemic. It would be the world’s largest stimulus package of $2.18 trillion for a Coronavirus-hit economy, as they have already spent nearly $1 trillion to restore the adverse effects of the pandemic. The total package would amount to 40% of the country’s Gross Domestic Product.

USA: The House of Representatives in the USA approved a $483 billion stimulus plan on top of a $2.2 trillion package, followed by a half a billion dollar stimulus. This money will back small businesses on the brink of bankruptcy, and hard-pressed hospitals. The package is necessary to ensure that small businesses have access to the resources they need.

Sweden: The central government of Sweden has guaranteed that 70% of new loans banks be provided to the companies experiencing financial difficulty due to the COVID-19 virus. This loan guarantee will primarily target small and medium-sized enterprises. Also, the Swedish National Debt Office will administer the guarantee and it is proposed that each company be allowed to loan up to SEK 75 million, although exceptions can be made.

Germany: A package worth up to 750 billion euros ($808 billion) to mitigate the damage of the Coronavirus outbreak on the economy has been announced. The relief measures by Germany include funds of up to 100 billion euros which can be used to take direct equity stakes in companies as a way to foil foreign takeovers. It also includes another 100 billion Euros in credit to public sector development bank KfW for loans to struggling businesses. The stability fund will offer 400 billion Euros in loan guarantees to secure corporate debt at risk of defaulting, taking the volume of the package to up to 750 billion euros. The extra budget includes a 50 billion Euro program to help small businesses and the self-employed threatened with bankruptcy by the Coronavirus crisis, with direct payments of up to 15,000 euros depending on the size of the firm.

India: The Atmanirbhar stimulus package of ₹20 Lakh Crore is designed to offer fiscal and monetary support to ease running of businesses. Moreover, to save the lockdown-battered economy, the stimulus package includes tax breaks for small businesses and incentivises domestic manufacturing. The combined package works out to roughly 10% of the GDP, making it among the more substantial stimulus packages in the world. (https://www.solvezy.com/indias-rs-20-lakh-crore-covid-19-economic-stimulus-package-impact-on-msme-sector/).

Comparison of Global Coronavirus Stimulus Packages

Trends shaping the growth of MSMEs in a post COVID19 world

Over the last few months, the COVID-19 crisis has dealt a severe shock to economies across the world. It has triggered certain trends that will change the way of doing business in the near and long term, and will help shape the growth of MSMEs.

Accelerating trends in the wake of the COVID-19 crisis:

> Digitisation: Digital tools will become popular in both the B2C and B2B space, and there will be a shift of venture capital focus from service centric businesses to deep tech companies. MSMEs and start-ups, therefore, need to build solid digital capabilities and digitise parts of their business model. Besides this, expansion into new sales channels is also the need of the hour. Consumers will require goods even amidst lockdowns. Thus, creating opportunities to serve one’s markets through alternate sales channels, such as expanding to e-commerce via platforms like SOLV and boosting one’s online-marketing efforts is critical. (https://www.solvezy.com/micro-small-medium-enterprises-msmes-covid-19/).

> Rise of the locally produced goods: Reliance upon foreign sources for getting technologies or weapons will see a decline, and the domestic market is expected to surge owing to a decline in global trade. That’s because the decline in global trade due to restrictions on international shipping and travel will see a rise in demand for goods manufactured entirely locally. Manufacturers will also have to look at backward integration of their supply chains.

> Changing consumer demands and expectations: Coming of age, consumers will become more prudent and health conscious, and businesses need to cater to their changing demands and expectations. Operating as earlier won’t suffice.

> Need for upskilling and reskilling: In the post COVID world, MSMEs will need to adopt new technologies and new ways of working in order to survive and compete. Governments will need to develop specialized institutes and training programs to create a pool of skilled resources in order to help local industry.

> Limited availability of finance: Disposable income will be impacted and investors will look for safer and low risk investments. As a result, MSMEs will end up relying on Government-backed funding mechanisms.

In the light of uncertainty, it is important to stabilise and explore. While there is no single path forward for all, MSMEs should follow a few basic tenets:

  1. Stabilise one’s core offering and explore new adjacent areas to venture into
  2. Leverage local subsidies, revisit the supply chain, and focus on cash management
  3. Analyse ways to change the value proposition, delivery channels and target new customer segments