Wednesday, 30 December 2015

MSME Financing: Current situation and solving the problem with tech

The start-up ecosystem in India is maturing on count of big brands, coming out of the early stage MSMEs. However, despite a lot of start-ups having a well-defined business model and innovative products on their side, they fail to make it big or sustain their operations.

With the primary issue in any start-up being lack of adequate capital, financing for MSMEs remains as one of the challenges. Seed/ Angel funding or VC funding, is a viable option for those who are willing to dilute their stake at an early stage; however, it is common knowledge that not all of the SMEs are able to secure a funding.

Off late, financial institutions such as Banks and NBFCs are coming to the aid of MSMEs. But the problem is their stringent procedures, which should have been changed to appeal to the start-up.
The process for application of loan at a bank is tedious with the documentation, Collateral, legal formalities and requirements taking its toll on the entrepreneur.

The Government has launched two programs for investment and loans, targeted at MSMEs. Both of these programs are managed by SIDBI (Small Industries Development Bank of India).
Micro Units Development and Refinance Agency (MUDRA) under the scheme has already been implemented. Loans are provided between Rs 50,000 – Rs 10 Lakh to businesses. The categories of loan which are available for entrepreneurs are Shishu, Kishor and Tarun to signify the stage of growth and funding needs of the micro unit or entrepreneur.­

MSMEs in the financial technology (Fin Tech) have also come up with solutions by providing technological improvements in the entire loan process. Crowdfunding and Peer-to-Peer lending platforms are disbursing funds to small businesses. Lenders on these platforms are people who are looking get higher returns than the traditional investment options. Credit checks are performed, but there is no collateral and the process is a lot simpler than that of a traditional financial institution.
Employing almost 40% of the country’s workforce and contributing a major chunk of Industrial output, the problems faced by MSMEs cannot be ignored.








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