The MSME sector often faces a lot of difficulties in accessing the loan. The major reason is even after contributing a lot in different sectors, MSMEs are not getting enough help in accessing credit. While there are other reasons as well. Currently, MSME contributes 15.5 Crore+ in employment, 45% in exports, and 29% in GDP. Following is a detailed report about the possible reasons behind the MSME’s current credit situation.
How MSME Sector Become More Inclusive?
The MSME Sector will become more inclusive by following steps. The first step is a lack of credit history. The MSMEs often don’t have enough credit history to show. Many MSMEs are the first-timers. Thus, the loan providers cannot gain enough trust in the credit-returning capacity of MSMEs. Another major reason for not gaining the trust of MSME borrowers is their irregular cash flow. MSMEs don’t get their payments on time from their buyers. Thus, it increases their difficulty even more.
Some MSMEs lie outside the city. Thus, they often don’t have enough resources such as traditional banks or internet banking. The government of India is now paying attention to the MSME sector. They are launching more schemes to benefit the companies in this segment. MSMEs are getting a lot of help from the government sector. Several new schemes are being launched in favour of these units. A big reason is that MSMEs contribute to a huge section of the country’s GDP.
The KYC process can also be more smoother. It will help the MSMEs get easy and fast access to the credit. Education plays another crucial role in the betterment of MSMEs. There are a lot of companies that don’t have enough knowledge about the resources and things that are available to them. Thus, they are not able to take advantage of those resources. Transparency plays another crucial role. The more transparent the algorithm is the more trustworthy it becomes for MSMEs.
In conclusion, The MSME sector faces a lot of hurdles in the process of getting access to credit. However, they end up not receiving the credit because of the lack of credit background. It can be improved by improving the payment cycle of the MSMEs. They often don’t get payment on time. It leads to irregular cash flow. Thus, the government introduced the 45-day payment rule which can improve the payment cycle of MSMEs. It will lead to institutions trusting their cash flow to provide them with loans.