Credit, Customization, and Tech: How NBFCs Can Unlock MSME Potential

From humble beginnings since independence, today, India has emerged as the 4th largest economy globally, with impressive gains in healthcare, evident in increased life expectancy and reduced infant mortality rates, improved literacy rate, and a substantial increase in GDP, showcasing the country's resilience and growth. 

As a country, we certainly have grown in many areas, but two significant aspects continue to hinder the growth of the Indian economy – per capita income and stable job creation, especially in the hinterlands of the country. Being one of the fastest-growing economies, with a large population of 1.4billion people and a diverse workforce, the lack of employment creation can have lasting implications on the country’s growth, especially against the backdrop of millions of children graduating each year in India. 

46 per cent of Indians are employed in agriculture, who contribute around 18% to the GDP – this clearly indicates disguised unemployment and the excess availability of manpower in the sector. Which sector can provide the much-needed employment opportunities to the aspiring population?

We need more people engaged in jobs, growth in per capita income, and more employment opportunities if we need to realise our ambition of Viksit Bharat by 2047. Who is today better positioned to contribute to this achievement? It’s not the government jobs, or tech jobs or any others, but India’s thriving and growing MSME sector. 

Also read: MSME Activity Holds Firm in May; Credit Growth, Exports Show Strength

Imagine 6 crore MSMEs creating a single employment opportunity, that in itself is a huge push towards Viksit Bharat. How can they do it? What is it that the country or their system has to provide them with to enable them? It’s simple - access to credit, the big catalyst. They need innovation and trade modernisation to enhance their business and shops, especially to compete with the surging e-commerce companies.

The number of women entrepreneurs in MSMEs is slowly on the rise where 26.2 per cent of proprietary MSMEs are now women-owned as per the Annual Survey of Unincorporated Sector Enterprises (2023-2024), but access to credit remains their top challenge. The participation of women in economic activity is a significant aspect for any country to grow. MSMEs need more entities that will cater to them, and who better than NBFCs to meet all three requirements of the sector. 

After agriculture, MSMEs are the second-largest employment generators in India and can play a pivotal role in the growth and development of the Indian economy. With their significant features of breaking the geographical barriers & reach, NBFCS can provide the much-needed shot in the arm to the MSMEs by providing them with:  

• Customised financial solutions -- The products offered by the NBFCS are often tailored to meet the needs of this segment. They are able to customise, innovate and build products after analysing the gap and the demand in the customer requirements and offer a broader range of products. Customised loan terms and flexible payment options are yet another attractive feature offered by the NBFCs. 

• Easy Documentation – Many MSMEs face the hurdles of heaps of documents to be submitted to financial institutions while availing loans. NBFCs offer tailored customer requirements, with simplified documentation enabling a convenient and efficient customer experience. Beyond credit scores, NBFCs can assess eligibility using alternative data such as bank statements, UPI payment history and margins of the business. Moreover, IT returns is not a mandatory aspect for many NBFCs, ensuring easy access to credit for these entrepreneurs. 

• Digital solutions – Reducing the turnaround time for disbursal of loans with the adoption of technology is an added advantage that NBFCs are offering today. India today is a data-rich country, especially with the growth of Digital Public Infrastructure (DPI). NBFCs have reached a stage where they are able to reach the masses and provide easy credit access without human intervention, which is witnessing wide acceptance among the customers. Many of them can access financial services from the comfort of their homes as well as opt to visit the branches, leaving the choice to the customers.

• Enhanced customer experience – With fintech firms blooming across the country, NBFCs today are open to partnering with new-age startups as well as traditional banks, creating an atmosphere of collaboration and not competition, while keeping the customer centricity intact. 

Also read: Delayed Payments Choke MSMEs as Dues Cross Rs 50,000 Crore Despite Govt Push

With a well-regulated environment and clarity from the Central Bank in lending practices, the NBFCs are today better poised to aid in the growth of India’s MSME sector.   

MSMEs are the growth engine of the Indian economy. Nurturing them and providing a robust ecosystem to MSMEs are not options anymore, but a must & a necessity. The future looks promising as NBFCs are geared up to be their financial partners, pushing them into the formal economy, shaping India’s entrepreneurial ecosystem and playing a contributory role in Viksit Bharat 2047.

Shaji Varghese is the CEO of Muthoot Fincorp.