DIPPING INTO THE FUNDING POOL

MSMEs HAVE BEEN STYMIED BY LIMITED ACCESS TO FUNDS, EVEN AS START-UPS ARE RAKING IN MASSIVE INVESTMENTS. INVESTORS ARGUE THAT MSMEs LACK THE DISRUPTIVE SPARK. BUT IS THIS TRULY THE ROOT OF THE PROBLEM?

- PALAK AGARWAL

THIS SECTOR CONTRIBUTES a chunk to India's GDP and exports and employs the highest number of people outside farms. Yet, when it comes to companies in the sector raising money, it is an uphill struggle, with insufficient working capital stunting their growth. The sector is none other than the country's micro, small, and medium enterprises (MSMEs)-the hidden heroes of the economy-where the current solutions, both from the government and the private sector, seem ineffective in addressing their funding needs.

Sample this: there exists a staggering $530-billion credit gap in the MSME sector, despite the number of enterprises nearly doubling each year, according to a report by Avendus Capital. While some credit schemes and policies offer some relief, stakeholders argue that loans only add to their burden. With an existing shortage of working capital, how can these enterprises afford to pay instalments, they ask.

While most SMEs that listed on the bourses in recent times have done well in the stock markets, unlisted companies in the MSME space have struggled to raise money from investors. And it's not as if these companies don't have strong fundamentals. For one, MSMEs are a resilient lot. And that was in ample display during the pandemic. When many other businesses were shutting down, most MSME players managed to survive, with nearly 47% of micro enterprises alone pivoting and adopting digital solutions to keep their businesses afloat, according to a CRISIL report. Despite this adaptability, the private investment ecosystem in particular remains sceptical of investing in the space.