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Covid19: SOLV says 90% SMEs to suffer if India doesn’t infuse liquidity

Nitin Mittal, Founder, SOLV

SOLV, an online marketplace connecting lenders and SME/MSME borrowers, has expressed concerns over the current economic crisis caused to the novel Covid19 virus. The Standard Chartered Bank-backed B2B platform said by around the end of April, 90% of the SMEs are likely to suffer major setbacks as they would not be able to sustain their business beyond the next three months.

Calling for immediate measures from the Central government and the Reserve Bank of India (RBI), the platform said that there is a need to infuse enough liquidity into the economy urgently before the country’s growth engine, the SME sector, starts witnessing slowdown following cash crunch.

SOLV’s Founder & CEO, Nitin Mittal, told IBS Intelligence, “…we expect many of the SMEs, with supply chain and other dependencies internationally or on other parts of the country, to be impacted in terms of stock disruptions, liquidity and eventually, cash flows. We believe the government, regulators, and FinTechs, including digital lenders, can come together with measures to help mitigate the impact.”

India’s small, medium and micro businesses have been on a growth track for the last few years on the back of Government initiatives such as Make In India and Startup India amongst several others. According to industry data, the segment includes over 63 million units and accounts for nearly 30% of India’s GDP, employing about 460 million people. It also contributes to about 45% of the total exports. However, the segment is likely to suffer the most as the global pandemic puts a brake on consumption and business trades between countries.

Mittal said that the government needs to provide impetus to this sector in the form of promoting and simplifying digital lending processes, allowing deferred EMI repayments, increasing credit in this market, and aiding traditional lenders with alternate lending scores among other critical points.

“SOLV is already leveraging the granular data on our platform to help our lending partners and SME clients manage the situation better. Working together, we can emerge from this situation with as minimal disruption as possible,” Mittal said, adding that SOLV has over thousands of such small and medium businesses on its platform.

However, the Finance Ministry has not announced an emergency fund or package for the SMEs even though the segment is likely to be impacted the most. While holding a press conference on Tuesday, the country’s Finance Minister Nirmala Sitharaman announced a waiver of interest, late fees, and penalties for SMEs so that they could focus on reviving their businesses once things are back to normal. The ministry has also deferred the last date for filing income tax returns for the financial year 2018-19 and extended it to 30 June 2020.

SOLV, which did a quick survey of the situation, has found out that 17% of SMEs have taken a loan in the last few days and will not be in a position to pay back if the business situation worsens. The survey said 99% of SMEs were under pressure and might resort to severe measures like layoffs to protect their costs and margins. About 95% into the trading and wholesale segment responded negatively to growth in business due to reduced in-person interactions as a result of the pandemic that mandates social distancing among human beings to minimize the spread of the Covid19 virus.

The SME segment was already facing a liquidity crunch over the past few quarters following a crisis that broke out in the NBFC sector due to the IL&FS debacle in late 2018. The event has led to the SMEs resorting to digital lenders in the country.

“We have witnessed a healthy 20-25 increase in credit demand from the small businesses in a bid to keep up with the cash flows and working capital. We have also witnessed some new sign-ups on our platform. We will be soon launching some initiatives to ensure healthy credit supply,” Mittal added.

He also said that development finance needs to be channeled better into the SME ecosystem, and timely access to funding facilitated through digital platforms. Meanwhile, the Indian Government has announced a 21-day nationwide lockdown starting today to check the spread of the deadly Covid19 virus in the country that has infected over 500 so far.

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