MSMEs in India are recovering from the pandemic by turning to FinTech lenders

By Puja Sharma

MSMEs have been able to bounce back stronger post-pandemic with timely support, reveals the MSME Insight Report 2022 –Rising In The Face of Adversity – released by NeoGrowth, the MSME-focused FinTech lender leveraging the digital payments ecosystem.

Arun Nayyar, Whole Time Director & Chief Executive Officer, NeoGrowth said, “Many MSMEs were struggling in 2020-21 due to the burden of loan repayments because of the cessation of demand from consumers. Early on in the pandemic, we identified that MSMEs needed extra support since this was a genuine business disruption. We realised that MSME customers were inherently honest and had the willingness to pay back. NeoGrowth handheld them throughout their journey, right from proactively understanding their sentiments at the beginning of the pandemic to supporting them so they can bounce back.”

“The MSME ecosystem in India is a ‘Survival to Revival’ saga. The vital lessons learned from the pandemic have transformed the way businesses operated and fast-tracked their move to digital. The credit demand from MSMEs is back to a healthy level. We, at NeoGrowth, firmly believe that the Indian MSME sector is on a successful resurgence trajectory, which opens up the pathway for strong growth of the Indian economy in the years to come,” he further added.

According to the report by MSME Gov, For organisations to increase their profitability, Information Technology is critical. The ability to acquire the latest technology also promotes competitiveness among Small and Medium Enterprises (SMEs). SMEs can respond to complaints and requirements from consumers efficiently using IT using email, telephonic communication, and social media channels. Among other uses of this technology, businesses can use various platforms of IT services for learning, marketing, and advertising, selling their products and services, as well as trading.

Most MSMEs are reluctant to embrace the latest technology due to a lack of understanding and knowledge when choosing the right technology solution for their businesses, which negatively affects their overall profitability. There is a lack of skilled labor to run high-tech machines and equipment, a lack of trust in tech, and high equipment capital costs.

As business ecosystems evolve and technologies become more sophisticated, the vast majority of global entrepreneurs cite AI, ML, data-enabled systems, internet-based businesses, and other cutting-edge technologies to become more efficient, gain consumer trust, and remain competitive.

Stage 1: Disruption and MSME Mindset

At the onset of the pandemic in early 2020, 97% of the MSMEs surveyed from NeoGrowth’s customer base of 16,087 MSMEs were worried that their credit scores would be negatively impacted due to non-payments. While 65% of MSMEs were confident of business recovery within 3 months, 93% of MSMEs planned to reduce operations costs to manage liquidity and only 1% expected a complete shutdown of their business operations. Overall, 25% of impacted MSMEs were run by women entrepreneurs.

The impact on MSME business operations during the early lockdown was due to restrictions on movement, inability to manage cash flows due to reduced consumer demand, and uncertainty around business recovery post resumptions.

Stage 2: Business Impact & Support Structure

In reality, 46% of MSMEs across India needed financial support to mitigate the impact, with higher demand from non-metros than metros. Financial support availed by non-discretionary MSMEs was lesser compared to other businesses. Maharashtra was the worst affected state during the first wave and close to 50% of MSMEs in Pune and Mumbai needed financial support.

Despite being the first ones to be impacted by the pandemic, MSMEs showed grit. They reinvented themselves by adopting digital solutions for their business, acquiring new skills, diversifying their customer base, and adopting digital lending for their financing needs.

Stage 3: Revival & Back to Growth

Interestingly, 75% of MSME borrowers who upgraded their pre-pandemic loans went for a higher amount with an 80% average increase in the principal loan amount.

In March 2022, it was observed that MSME credit demand from non-metro cities was back to pre-COVID levels whereas that in metro cities was lagging marginally. Non-discretionary demand-oriented business segments such as Petrol pumps, Infrastructure, and Auto recovered faster than consumer-facing and discretionary demand-oriented businesses. The credit demand by MSMEs in Bengaluru and Chennai exceeded pre-pandemic levels.

New opportunities have been unearthed for the MSME ecosystem in these last two years. Traditional ways of borrowing and conducting business had to make way for new-age digital channels and digital lending became increasingly important to infuse the required funds into the MSME ecosystem. Innovation and customisation will be the way forward for FinTech lenders such as NeoGrowth to deliver enhanced value to small businesses, throughout their loan journey.

Key Highlights

• March 2022 saw MSME credit demand from non-metros going back to pre-COVID levels whereas metros are still lagging
• Around 46% of MSMEs across India needed financial support to mitigate the immediate impact of COVID-19
• 75% of MSME borrowers who upgraded their pre-pandemic loans opted for a higher principal loan amount.
•  Business ecosystems are adopting AI, ML, data-enabled systems, internet-based businesses, and other cutting-edge technologies to become more efficient