The MSME sector in India continues to demonstrate remarkable flexibility in the face of trailing global and domestic economic circumstances. The significance of MSMEs is attributable to their calibre for employment generation, low capital and technology requirement, mobilization of resources and exportability of products. According to the estimates of the Ministry of MSMEs, Government of India, the sector generates around 100 million jobs through over 46 million units situated throughout the geographical expanse of the country. With 38% contribution to the nation's GDP and 40% and 45% share of the overall exports and manufacturing output, respectively, it is easy to comprehend the salience of the role they play in social and economic restructuring of India.
Recognizing the pivotal role played by the MSMEs, the CII National MSME Council has been working towards creating an enabling policy environment and developing a competitive advantage in the MSME sector. The government is trying to push for concerted policy interventions in the areas of finance, regulatory compliances, skills, and infrastructure and export promotion to build an enabling ecosystem for the vast multitude of MSMEs and facilitating their ease of doing business. CII National SME Council has recently introduced some path breaking initiatives to transform the performance and growth prospects of Indian MSMEs.
Even though MSME play a significant role in the economy, most of them have limited access to financing. Factors like financial infrastructure, inadequate distribution channels, lack of cash flow and regulatory processes impede the SME lending and results in poor financial inclusion.
With the advent of the digital age, financial institutions in the region are directing their attention to address the financial gap and to tap into this growing MSME sector's financial needs.
Digital banking offers numerous advantages that work towards improving; largely riding on the fact that MSME's have shown tremendous preference for digital technologies, with increasing growth rates for e-commerce as well as mobile phone adoption. Digital platforms are likely to deliver financial services to both the medium and small enterprise, especially in tier-2 and tier 3 markets, at a low cost, and subsequently increase digital financial access to provide high quality and affordable financial services. It is believed that the time has come for digital banking players to gear up for the launch of digital products and services for their customers. This is expected to lead to future benefits from lower operating costs, along with increased business volumes, while also driving financial inclusion.
All these signs are encouraging, though the market is still nascent and fragmented. To achieve real scale, government and players must look to ensure greater interoperability and value-added services that will make financial inclusion more attractive and convenient to the MSME's.
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