<p>The Micro, Small, and Medium Enterprise (MSME) sector has emerged as a very important sector of the Indian economy. </p><p>The sector plays a major role in the economic and social development of the country by fostering entrepreneurship and generating employment opportunities through innovation, exports, and inclusive growth. Its growth and development are closely interwoven with the country's mission to become a major global economic power. </p><p>MSMEs are widening their domain across sectors of the economy, producing a diverse range of products and services to meet the demand of domestic and global markets. It contributes in a significant way to the growth of the Indian economy, with a vast network of about 63 million enterprises with a 45% share in manufacturing output, more than 40% in exports, and over 30% of the GDP. </p><p> </p><h2><span style="font-size: 14pt;">Government Schemes for MSME </span></h2><p>Accordingly, various acts and schemes have been put in place by the Government, such as MSMED Act, 2006 and its later amendments, the Performance Linked Incentive scheme (PLI), Interest equalization Scheme for Exporters, etc., to provide a policy environment for promotion and development of the sector, enhancing its competitiveness and ensuring the flow of credit to it. </p><p>The Government prefers to procure products and services of the MSEs. The sector is heterogeneous in terms of the size of the enterprises, variety of products and services, and level of technology employed. </p><p>The sector, too, faced many challenges like - Covid Induced lockdowns and restrictions in the movements of manpower and goods, a steep fall in consumption and exports leading to stress and closure to many units in the last one and half years. The GOI has come out with Guaranteed Emergency Credit Line (GECL) to provide some relief to the borrowers whose operations are impacted by Covid 19. </p><p>The world is moving towards digital, and SMEs should also learn to leverage technology in every aspect of the value proposition of their business, designing products, streamlining the process, and improving delivery. </p><p>Banks are also adopting risk mitigation by implementing significant changes in</p><ul><li style="list-style-type: none;"><ul><li>Product suite</li><li>Process and</li><li>Delivery by facilitating digital connections with customers for ease of business</li></ul></li></ul><p> </p><p>One of the major areas which banks focus on is improving customer journey and customer connection. </p><p>The GOI's path-breaking initiative, <a href="https://www.psbloansin59minutes.com/home" target="_blank" rel="noopener">psbloanin59minutes.com</a>, provides easy access for loans to SMEs registered on the GST platform and filing income tax returns.</p><p>GOI is taking many initiatives and measures to make MSMEs competitive and make India the world's "Manufacturing Hub". MSMEs have to become financially literate to avail the benefits of various schemes launched by GOI and follow financial discipline to maximize the benefits. </p><p>Financial discipline helps them avail themselves of government-sponsored schemes like the MUDRA yojana, Prime/Chief Ministers Employment Generation Program (PMEGP/CMEGP), and Stand up India, to name a few.</p><p>Apart from these, it helps to avail digital lending from banks/NBFCs, which are solely based on cash flow and financial prudence.</p><p> </p><p> </p><p><span style="font-size: 10pt;"><em>This article was contributed by our expert <a href="linkedin.com/in/hitesh-patel-b105403b">Hitesh Patel</a> </em></span></p><p> </p><h3><span style="font-size: 18pt;">Frequently Asked Questions Answered by Hitesh Patel</span></h3><p> </p><h2><span style="font-size: 12pt;">1. Why is MSME the backbone of Indian economy?</span></h2><p>It contributes in a significant way to the growth of the Indian economy with a vast network of about 63 million enterprises with 45% share in manufacturing output, more than 40% in exports and over 30% of the GDP.</p><p> </p><h2><span style="font-size: 12pt;">2. What are the initiatives taken by banks to improve the flow of credit to MSMEs?</span></h2><p>With a view to enhance ease of business for the MSME dedicated branches have been opened in each district. Bank’s path-breaking initiative, psbloanin59minutes.com, provides easy access for loans to SMEs registered on GST platform and filing income tax returns. Through this platform in-principle approval is given in 59 minutes and loans are sanctioned and disbursed within 7 days.</p><p>Bank’s approach in driving SME growth rests on the following three pillars:</p><ul><li style="list-style-type: none;"><ul><li>Customer Convenience,</li><li>Risk Mitigation,</li><li>Technology based digital offerings and process improvements</li></ul></li></ul><p> </p><p>Customer Convenience- With a view to build and sustain the momentum for transforming India, and ease of business for the MSME dedicated branches have been opened in each district.</p><p>Through digital offerings bank is leveraging technology in every aspect of the value proposition from business, designing products, streamlining process, improving delivery to monitoring. To build SME portfolio in a risk mitigated manner we have implemented significant changes in:</p><ul><li style="list-style-type: none;"><ul><li>Product suite</li><li>Process</li><li>Delivery for ensuring Ease of Banking.</li></ul></li></ul><p style="padding-left: 40px;"> </p><p>We are facilitating digital connect with our customers for ease of doing business.</p><p>Loan Life-Cycle Management Online Loan Application and Online Lead Status: Bank is hosting an online loan application and tracking facility for MSME borrowers on the corporate website.</p><p>A CRM ID is generated against customer’s loan application submitted online or offline through Customer Relationship Management (CRM) application, which is sent to customer’s mobile number. Customer can track his loan application through this CRM ID and mobile number on the online portal after successful OTP validation.</p><p><strong>Customer Relationship Management (CRM)</strong></p><p>Bank has introduced CRM as an integrated platform to engage with customers throughout their lifecycle, to enhance understanding of customer’s requirements and to strengthen customer centric approach of the bank. The CRM portal has been designed with the objective of generating leads in CRM application through various channels, better monitoring mechanism of leads at various stages and booking of increased business with lower TAT through customer connect. Apart from lead monitoring, Customer 360 view is also available in CRM.</p><p><strong>Contactless Lending Platform</strong></p><p>State Bank of India is one of the stakeholders of SIDBI led PSB consortium and your Bank’s path-breaking initiative, psbloanin59minutes.com, provides easy access for loans to SMEs registered on GST platform and filing income tax returns.</p><p><strong>Digitalisation of Services for Borrowers</strong></p><p>To enhance customer experience and for hassle-free submission of financials and other statements, your bank has made available this service, through its Corporate Internet Banking Platform.</p><p><strong>Pre-Approved Business Loan (PABL)</strong></p><p>Bank has introduced a simplified PABL product – An Analytics product for sanction of loans upto Rs.20 lakhs for existing current account customers has been launched (end to end digital journey).</p><p>Import LC opening through YONO Business: Yono Business provide online facility for profile management, fully digitised journey for issuance of Import letter of credit, simpler onboarding journey with reduced documentation for new to digital customers and much more. We are one of the best players in terms of issuing import LCs through digital channel for our SME customers.</p><p><strong>Credit Guarantee Schemes</strong></p><p>In these schemes, bank provide a collateral free loan up to Rs.2crs to all eligible borrowers upon payment of certain fee. The schemes viz. CGTMSE, CGFMU, CGSSI, CEGSSC, CGSMFI covers across the spectrum of borrowers (MSME, SHG, Agri allied, Retail trading etc). </p><p><strong>Trade Receivables Discounting System (TReDS)</strong></p><p>State Bank of India is the first among all PSBs to register as a financier on the TReDS platform, set up to provide finance to MSMEs. We have our presence on all the 3 TReDS platforms in the country i.e., RXIL, M1 exchange and Invoicemart. We are actively participating in the online biddings on the platform and offering very competitive rates for the benefit of MSMEs. During the year, 4 more new branches were authorized to conduct TReDS business. With this, we have presence in all geographies, with a total of 6 branches doing TReDs business.</p><p> </p><h2><span style="font-size: 12pt;">3. What are some challenges banks faces while supporting small businesses?</span></h2><ul><li style="list-style-type: none;"><ul><li>One of the key challenges currently associated with availment of such credit is that it is a largely paper-based process with high Turn Around Time (TAT).</li><li>Borrower are lacking financial disciple and are not aware of financial literacy</li><li>Lack of liquidity</li><li>Lack of collateral security</li><li>In adequate or no credit history</li><li>Delay in payment to MSMEs</li></ul></li></ul><p> </p><h2><span style="font-size: 12pt;">4. How does FinTech help MSME?</span></h2><p>A wave of changes brought in by FinTech have had a positive impact in terms of enhancing inclusion and further penetration of financial services.</p><p>FinTechs contribute to enhance efficiency in terms of service delivery and in bringing down costs. Through their customised products and customer interfaces, they provide an enriching and seamless consumer experience. They also have the potential to improve market access and a range of product offerings, apart from improving access to credit and financial inclusion in the traditionally unserved or underserved segments.</p><p>In India, one of the most transformative roles that can be played by FinTech is in the area of credit delivery in partnership with traditional lenders, especially in rural and semi urban areas. Timely availability of credit at reasonable cost, especially for agriculture and allied activities and MSMEs, is very crucial for our economic growth.</p><p>The Account Aggregator (AA) framework is an important step towards realising the potential of empowering millions of underserved customers to digitally access and share their financial data across institutions in a secure and efficient manner to help customers gain control over their financial data and use it for accessing a variety of products including credit, insurance, investments for their own benefit. Centralised KYC (CKYC) and Video KYC are other enablers to facilitate seamless onboarding of customers in a digital and cost effective manner. We are giving greater focus on these initiatives.</p><p>The emergence of FinTech players and the growing popularity of their innovative products have challenged the existing players in financial services in maintaining their market share, margins and customer base. The incumbent firms are responding to these challenges by adopting various strategies, which include making investments in FinTech companies and partnering with them. They are also enhancing their in-house capabilities to adapt to the new realities.</p><p>Digital lending has taken off in the recent past was phenomenal and it has served the needs of various segments. issues proactively and, as early as in June 2020, regulatory guidance was provided to our Regulated Entities. This guidance, among other things, mandated that digital lending platforms disclose the names of the banks/ NBFCs upfront on whose behalf they were providing credit.</p><p>The recently issued regulatory guidelines on digital lending7 strike a well-considered balance between customer protection and business conduct on the one hand and supporting innovation on the other.</p><p>Let me emphasise that while innovations are very much welcome, they must be responsible and should enhance the efficiency and resiliency of the financial system while benefitting the consumers. Robust internal product and service assurance frameworks, together with fair and transparent governance, will go a long way to safeguard the interest of customers and ensure long-term sustainability of the FinTech entities themselves.</p><p>The level of due-diligence and oversight exercised by the regulated entities on their outsourced activities needs to be strengthened further. This would help in proactive mitigation of risks at the incipient stage itself.</p><p><strong>Co-lending model</strong></p><p>By Banks-NBFC and FinTech to improve penetration of credit to unserved customers</p><p><strong>Customize and Tailor-made Product</strong></p><p>FinTechs have designed and developed tailor made products that meets the requirement of MSME. These products include small loans, loans with flexible repayment period (daily, weekly, fortnightly and monthly) depending upon the cash flow of the MSMEs.</p><p>Cash flow-based lending: Majority of MSMEs are out of formal financing due to in adequate credit history and insufficient collaterals. FinTechs have designed products based on cash flow and tapping the customer behaviour and providing small ticket size loans. This has helped them to create credit history and down the line help to access the formal credit channels.</p><p> </p><p> </p><p> </p>
KR Expert - Hitesh Patel
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