Cash flow cycles for MSMEs that are part of the supply chains of large companies are stretched due to stuck and delayed payments, reflecting lopsided bargaining power vis-à-vis large buyers. It has been estimated that MSMEs are owed an aggregate of Rs 15-lakh-crore at a point of time. This number is only indicative of the working capital deficit faced by the small number of registered MSMEs in the country, amounting to just 13% of the existing small businesses. This problem is more severe for micro-enterprises, approximately 80% of whom see payments delayed beyond the statutorily defined 45 days and approximately 45% see payments delayed beyond 180 days after they deliver products or services. It will take more than a business-as-usual approach to keep MSMEs afloat and enable them to grow to their fullest potential.
The good news is we are at an inflection point for change. Several innovations and solutions have achieved a proof-of-concept maturity and are being viewed as scalable today. It is also the result of ecosystem-wide changes having taken place that help bridge the gap between MSMEs that are part of supply chains and large corporates, and also create a robust data ecosystem that enhances the flow of credit from banks and financial institutions.
For real change to be affected for MSMEs that are part of corporate supply chains, however, it’s important that the two sets of stakeholders that most affect the survival or ability to thrive in MSME’s: large companies and governments, show greater willingness to adopt good, workable solutions that are now within reach. They must see that these shifts are desirable and necessary, not just for MSMEs, or for big business to flourish, but for the economy and society at large. What the covid era, with its breakdown of supply chains made obvious, is the interrelation between healthy small and large businesses, but also healthy families and healthy economies. The recent policy focus and actions by the government, as also detailed below, have been quite encouraging, but the opportunity exists to do much more.
The financial reasons that MSMEs run into trouble are well documented. Running a small business requires having access to working capital, without which the day-to-day operations as well as long term planning and profitability are jeopardized. Besides driving a working capital crunch, payment delays also lead to…
Read More: msmes: To solve a Rs 5-lakh-crore problem for small businesses, India needs