BENGALURU: Despite the government announcing several measures to enhance credit availability to stressed MSMEs, nearly 50.7 million enterprises (80 per cent of the 63.4 million MSME’s in India) lack access to traditional lending channels, a report from the Association of Chartered Certified Accountants said.
ACCA noted that the credit gap of USD 380 billion ( as per the WHO estimates) for Indian MSMEs has significantly increased in the last five years. Credit from Non-Banking Financial Corporations (NBFC), which significantly contributed to the growth of the sector, had dropped by 30 per cent as on March 2019.
The COVID-led decline in the revenues across sectors now poses an existential crisis for many businesses, impacting their viability for next 6-12 months with the shortage of capital flow as the main challenge, ACCA’s Global COVID Survey 2020 pointed out.
A decline in economic activities during lockdowns has threatened business continuity for many small businesses, making MSMEs one of the worst-hit sectors. While the existing challenges have significantly worsened, new problems noted. It added that non-essential businesses have taken a worse hit during the lockdown, with many opting for loan moratoriums announced last year.
Due to the lack of access to low-cost formal credit from traditional sources, MSMEs operate out of what is referred to as India’s shadow economy, where they are funded by informal sources such as friends and family, or moneylenders who often charge high rates of interest or fail to maintain proper records.
The absence of credit history, especially for New to Credit (NTC borrowers, makes it even more difficult for small businesses to receive funding, thereby widening the sector’s credit gap. the research report pointed out.