The pandemic and its after-effects have left the sector, which provided the largest number of jobs in the organized sector, in deep pain.
20-page report requested reserve Bank of India 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 to expand the scope of financial services and funding channels would be MSMEThe committee said in a set of recommendations on the implementation of the RBI’s economic policy after the pandemic.
As fintech is empowering financial inclusion, the government and RBI can nurture an evolving ecosystem to enable credible partnerships between fintech firms and banks, the report said. With the Open Credit Enablement Network (OCEN) infrastructure, MSMEs can reach out to a variety of lenders and access credit at an affordable cost.
The committee says that decentralized account aggregators can help MSMEs and ‘new-to-credit’ borrowers as lenders in lending based on verified data such as GST invoices, bank details, cash flow information with less risk of data tampering will be able
Digital credit products by Credit Service Providers (LSPs) should reach their customers digitally within minutes and meet the needs of SMEs. To enable embedded finance to effectively reach the last mile beneficiary, the execution and implementation should be seamless. These are areas where the government and regulators can be of great help. The report said that until legislation catches up with the rapidly changing fintech space, regulations would have to be adapted to give the financial system time to absorb the changes.
Experts have said that low credit growth in the cash-strapped sector is likely to stifle the recovery efforts of small businesses. Despite lower policy rates, interest rates on working capital remain high, especially for those who are unbanked or under-banked, increasing the cost of capital for MSMEs. Therefore, RBI has to provide targeted interventions with more focus on various sectors. The government and regulators may explore more adaptation of the relief policy at the state level to support MSMEs.
The government should continue to provide financial assistance to borrowers from eligible sectors and businesses to meet their operational liabilities and restart their businesses. The report said that repeated expansion in both time and scope of the ECLG scheme is necessary till the economy revives and MSMEs see revenue growth.
The government gives guarantees on credit risk, and must respect timely disbursement of payments to ensure that banks continue their loans under the scheme. There will be default and NPA will increase. RBI should prepare itself for this and set up a task force to isolate the willful defaulters from others. An online dispute resolution and digital ombudsman scheme should be promoted to investigate complaints and resolve disputes with the help of Chamber of Commerce and Industries.
BCIC’s N Venkatakrishnan, KV Omprakash and Joydeep Nag and Deloitte’s Rumki Majumdar are the other members of the committee.