Trade, import, and export for MSMEs: When the planet went into lockdown final year in the wake of the coronavirus pandemic, one sector that kept persons going is e-commerce. The pandemic gave e-commerce a enhance in the US, taking it to levels not anticipated till 2025. Digital marketing and advertising agency ROI Revolution projected that the sector could bring more than $ 843 billion in sales this year. Even in India, news reports recommended that 40 per cent of current on the internet shoppers purchased more solutions on the internet due to the pandemic. A Bain & Company report on how India shops on the internet says: “The Indian e-retail market is primed to reach nearly 300 million to 350 million shoppers over the next five years, propelling the online gross merchandise value from $100 billion to $120 billion by 2025.”
This alter in getting trends is a piece of fantastic news for the retail business for certain. But it is also fantastic news for suppliers. Significantly, the report adds this: “Over the past few years, India has experienced a surge in small enterprises and homemakers scaling their businesses by taking them online. E-retail has enabled the creation of millions of jobs and empowered delivery personnel, mom-and-pop Kirana stores, and several small sellers.”
E-commerce benefit
It’s not just modest sellers on e-commerce platforms like Amazon and Flipkart in India. Today, MSME suppliers can leverage the energy of e-commerce to sell anyplace in the planet. They can set up their platforms or get attached to current platforms to sell globally. And recall, these platforms are not necessarily only retail-distinct. There are B2B e-commerce platforms that can assistance suppliers be a portion of the worldwide worth chain.
Cross-border e-commerce aids Indian MSMEs in quite a few approaches. One, of course, is that it expands its market place devoid of demanding also a great deal in terms of marketing and advertising infrastructure. E-commerce also offers sellers the likelihood to study the demands of a new market place and tweak offerings to suit that market place. MSMEs, who decide on to piggyback on an current e-commerce platform, can take benefit of the logistics assistance supplied by these platforms.
Increased demand from a bigger consumer base suggests that MSMEs will want to scale up. That could imply higher investment in capacity and also more job creation in India. It appears like an emphatic win for all concerned — prospects, e-commerce platforms, MSMEs, and the economy. So, why are not more MSMEs flocking to cross-border e-commerce platforms? Or searching at getting into e-commerce on their personal?
Crying want for credit
Like most issues connected to MSMEs in India, the answer boils down to funding. MSMEs lack effortless access to credit. Because of their modest size and since they generally do not have collateral, banks and economic institutions are reluctant to lend to MSMEs. The government has attempted to extend assistance by launching schemes like the 59-minute loan scheme. But these efforts want to be stepped up substantially if the majority of MSMEs are to advantage.
MSME exporters also face the concern of a extended payment cycle — and generally shed out since of currency fluctuation. These are modest players who do not have a economic cushion to take care of extended payment cycles, and they are also modest to even look at currency hedging.
Export finance, which permits a seller to get access to working capital just before the purchaser pays for the goods, is some thing MSMEs want but seldom get. Various reports estimate that 56 per cent of MSME applications for trade finance have been rejected in 2019 alone. What does this imply to the MSME exporters? For one, they finish up scraping the barrel when it comes to working capital. It also suggests that they can not expand their capacity even if the demand increases, nor can they enhance the high-quality processes or expand their workforce. They finish up getting caught in a vicious cycle, which effortless credit can assistance break.
Fintech benefit
For some time now, small business analysts and governments have been speaking about the $1.5 trillion finance gap for MSMEs across Asia, with Indian MSMEs accounting for a important quantity. Can this gap be bridged? Fintech has been noticed as a promising resolution. Both established economic players like banks and lending institutions, as properly as modest fintech players, can take benefit of technologies to enhance credit access to MSMEs, especially the MSME exporters.
Fintech businesses offer you trade finance and other export options to MSMEs at a low expense. Because they use technologies options to recognize credit-worthy borrowers, fintech businesses are typically much less insistent on borrowers offering collateral. Equally, since their due diligence is technologies-driven, it is more quickly and more precise than the conventional persons-driven strategy.
Fintech lenders are especially appealing to MSME exporters who want to take benefit of the e-commerce boom to enter worldwide markets. That’s since fintech tends to make the procedure of financing smooth and rapid, some thing exporters want. Equally significant is the reality that since these businesses are technologies-driven, their techniques are transparent, and they make sure that all foreign currency created in overseas sales goes straight to Indian banks.
Policy initiative
The government is cognizant of the significance of MSMEs to exports and has created provisions in the e-commerce policy to assistance this sector. Reports say the government aims to set up committed e-commerce export promotion cells and specialized export assistance policies for MSMEs. Why is this significant? According to government information, at least half of all the Indian MSMEs are based in rural locations.
This suggests they lack access to domestic huge markets. Integrating such businesses into worldwide worth chains by means of e-commerce can make sure that the MSMEs have an assured, and developing, market place. It also suggests they will be capable to concentrate on high-quality in order to compete with worldwide players. Even if the e-commerce policy does not grow to be a reality quickly, MSMEs have the chance to enter this space and develop their market place — and high-quality. All they want is a small assistance from fintech lenders to make sure that they have the capital they want to develop and enhance.
Pushkar Mukewar is the Co-Founder and CEO of Drip Capital. Views expressed are the author’s personal.