MSMEs – The New Champions of Economic Growth

Owing to the COVID-19 pandemic and the resultant worldwide lockdown, major economies all over the world have plunged into an unprecedented recession. In this emergent situation, India is endeavoring to find an opportunity to build a new self-reliant nation.

The recent announcement of “Atmanirbhar Bharat Abhiyan” to stimulate the economy has assigned a pivotal role to the MSMEs in the country: they now serve as a support-industry for the large enterprises and a major market has opened up for them to operate in.

Various initiatives have been taken for the growth and development of SMEs which are expected to uplift the domestic industry, boost the country’s economy, and make India even stronger than before. 

We at “OfBusiness” help SMEs by providing a financing platform that combines services as product fulfillment, along with lending, in the manufacturing and contracting SME segment. OfBusiness serves as a single-window Lender for SMEs by providing credit lines that can be used for procurement of raw material which is enabled through the platform itself.

The platform aggregates these raw materials and passes the bulk of the aggregation benefit to the SME. OfBusiness aspires to support SMEs in various spheres like – 

• Financing
• Procurements
• Fulfillment
• Contract management
• Labour supply
• Leasing
• Insurance
• Tender sourcing and execution

We can say its bundle of services facilitates SMEs to build their business in multiple folds which can lead to major contributions in national GDP, growth in employment, and tax collections.             

Under this Abhiyan, on 13th May, the Finance Minister announced several measures under the post-pandemic financial package to help restore economic growth and achieve the goal of self-reliance.

Out of sixteen measures announced under the package, six were targeted towards MSME Relief, thus highlighting the importance of the MSME sector as a catalyst to the nation’s growth. The six measures are briefly as under: 

1. Collateral Free Automatic Loans: INR 3 Lakh crore outlay, benefitting 45 Lakh MSMEs. MSMEs with INR 25 crore outstanding in loans and INR 100 crore in turnover will get credit guarantee backed loans of 4 years tenure, with a 12 months moratorium on the principal amount and a capped interest rate. The scheme was available up to 31st Oct.
2. Subordinate Debt for stressed MSMEs: INR 20,000 crore outlay, benefitting 2 Lakh MSMEs. Government to provide INR 4,000 crore towards partial credit guarantee support to banks and banks will do onward lending to promoters who can use it to infuse equity.
3. Fund of Funds for MSMEs: With a corpus of INR 10,000 crore, operating through primary and secondary funds, and will help leverage INR 50,000 crore fund at a secondary level enabling MSMEs to expand in size.
4. MSME definition amendment: Amendment in MSME definition to ensure efficient targeted reform intervention and in line with global standards and synchronized with GSTN framework.
5. Only Local Bids for Government tenders up to INR 200 Cr: This will act as a boost to MSMEs and protect it from foreign competition.
6. MSME dues and Market Access: E-market linkages for MSMEs are on the anvil to promote trade. All receivables of MSME from Government and PSUs to be cleared in 45 days.

Despite these govt benefits, SMEs need to build their Internal Controls into this pace changing environment to remain in the game and compete with other players in the market. An effective internal control system plays a key part in helping a company achieve business objectives and financial success. It provides a framework using which employees can deploy sound controls over their areas of business. It will also address broader operational risks & controls, compliance, and bring business benefits. 

Investment in internal auditing can add value to an organization via operating efficiencies, safeguarding assets, more reliable financial statements, and realizing an organization’s goals and objectives leading to rewarding stakeholders.

Some Remedial and Cost-effective Measures for SMEs to Develop Internal Controls –

• Control over documentation such as sequential numbering of PO, sales invoices, etc,
• Timely reconciliation of all bank statements and financial accounts,
• Independent review and sign off of business/payroll payment,
• Physical control over inventory, assets, and cash,
• Separation of purchase requisition and payment authorization
• Review and reconciliation of business credit cards
• Independent review of staff reimbursements and expense claims.

SMEs need to explore new sources of funding to infuse capital. This process involves exploring new markets and products, taking benefits of Govt schemes and plans, employing efficient teams, export orientation to build a business, etc.

The Indian MSME sector possesses enough potential and possibilities to accelerate the industrial growth in our developing economy. MSMEs are also well equipped to support a national program like ‘Make in India’. OfBusiness will always strive in its ambit to make this a success in every possible way.