A five-member expert committee of the Bangalore Chamber of Industry and Commerce (BCIC), led by veteran investment banker PN Vijay, has called for efforts to sew up partnerships between companies and banks to step up lending channels to the MSME sector.
The pandemic and after-effects have left the sector, which has provided the largest number of jobs in the organised sector, in deep pains.
The 20-page report urges the RBI to enable the MSME financing ecosystem with a long-term vision as it is rapidly evolving with a lot of fin-tech players redefining the lending landscape. One of the ways would be to expand the scope of financial services and funding channels for MSMEs, the committee has said in a set of recommendations on RBI economic policy implementation post pandemic.
Fintech, the report says, is empowering financial inclusion, so the government and the RBI could nurture the evolving ecosystem to enable credible partnerships between fintech firms and banks. With open credit enablement network (OCEN) infrastructure in place, MSMEs can access a wide variety of lenders and access credit at affordable costs.
The committee says decentralising account aggregators could help MSMEs and `new-to-credit’ borrowers as lenders will be able to give loans based on verified data such as GST invoices, bank statements, cash flow information with low risks of data tampering,
The digital credit products by loan service providers (LSPs) must reach their customers digitally in a matter of a few minutes and meet the needs of SMEs. To enable embedded finance to reach the last-mile beneficiary efficiently, execution and implementation must happen seamlessly. These are areas where the government and regulators can help in a big way. Until legislation catches up with the rapidly changing fintech space, regulations have to adapt so that it gives time for the financial system to absorb changes, the report notes.
The experts have said low credit growth to this cash-strapped sector is likely to weigh on the recovery efforts of small businesses. Despite low policy rates, interest rates on working capital remain high, especially for those that are unbanked or under-banked, which raises the cost of capital for the MSMEs. Hence, the RBI will have to provide targeted interventions with more focus on different segments. The government and regulators could also explore greater customisation of relief policy at the state level to support MSMEs.
The government must continue providing financial support to eligible sectors and businesses borrowers in meeting their operational liabilities and restarting their businesses. The frequent extension of the ECLG scheme both in time and scope has been necessary till the economy revives and MSMEs see revenue growth, the report says.
The government stands guarantee on the credit risk, and it must honour timely disbursement of the payments to ensure that banks keep up their lending under the scheme. There will be defaults and NPAs will rise. The RBI must prepare itself for this and prepare a taskforce that segregates non-wilful defaulters from the others. An online dispute resolution and digital ombudsman scheme should be promoted to investigate complaints and resolve conflicts with the help of the chamber of commerce and industries.
BCIC’s N Venkatakrishnan, KV Omprakash and Joydeep Nag and Deloitte’s Rumki Mazumdar are other members of the committee.