Credit and Finance for MSMEs: At least Rs 15 lakh crore is stuck in payments to MSMEs every year with payments commonly made in 3-six months in contravention of the MSMED Act, according to sector specialists. The second wave of the pandemic, which exposed vulnerabilities of MSMEs like under no circumstances prior to, had aggravated their challenges such as delayed payments, higher informality, and low economic resilience. “Market-driven solutions such as mainstreaming receivables discounting especially through the ‘soon to be tabled’ factoring amendment bill and supply chain financing solutions that incentivise large buyers to initiate supply chain financing for their MSME suppliers,” have been suggestions by specialists in the course of a roundtable organised by the Global Alliance for Mass Entrepreneurship (GAME) to alleviate payment-associated challenges.
Nirav Choksi, Co-founder & CEO, CredAble, Ketan Gaikwad, CEO, Receivables Exchange of India (RXIL), Brajesh Palsaniya, Head – Treasury, Raymond, and Kinjal Sampat, Vice President – Research, GAME have been component of the roundtable. According to the MSMED Act, the purchaser should really spend MSMEs inside 45 days from the day of acceptance or deemed acceptance of goods or services. Based on the World Bank’s estimates, the credit gap for MSMEs in India stands at $380 billion amid challenges in classic lending models involving requirement of collateral by banks, poor creditworthiness of MSMEs and so forth.
“Banks are unable to underwrite MSMEs because of low levels of digitisation and lack of documentation such as IT returns. This lack of formalisation can be addressed by supply chain financing that relies on the credibility of a buyer or a GST invoice to finance MSMEs which circumvents some of the traditional challenges to lend to the segment,” stated Srinivas Rao, CEO, Global Alliance for Mass Entrepreneurship (GAME).
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To allow invoice discounting, TReDS as a idea was introduced in 2014 by the Reserve Bank of India whilst later in 2017, 3 platforms like M1Xchange promoted by Mynd Solutions, Invoicemart (joint venture of Axis Bank and mjunction services), and RXIL (joint venture in between SIDBI and NSE) have been issued licenses to operate on TReDS mechanism. According to a statement by Finance Ministry, the quantity of providers registered had elevated 4.8x from 329 as of January 31, 2021, to 1,592 as of May 31, 2021, to facilitate credit to MSMEs, according to the information out there with the MSME Ministry, TheSpuzz Online had reported.
“In these troubling times for MSMEs, large corporate houses who work with these firms can help in several ways. Supporting invoice discounting on TReDS, for example, allows us to retain flexibility with our cash flow while ensuring immediate liquidity to MSMEs. Similarly, bilateral supply chain financing arrangements with banks prevent cash flow mismatch. There is an excellent business case for tier – 2 and tier – 3 MSME suppliers to have access to credit. It builds the resilience of our own supply chains.” Brajesh Palsaniya, Head – Treasury, Raymond.