Need of new liberal approach

Micro small and medium enterprises, popularly known as MSMEs are the backbone of Indian economy. This sector is estimated to contribute approximately 31 per cent to India’s GDP, 45 per cent of exports and accommodates huge labour force. Now, this segment collectively provides employment to over 100 million people and brings in other unquantifiable socioeconomic benefits. The government, every institution and those who keep watching the sector know the facts. Some organisations carry out seminars and brain-storming session on the MSMEs’ growth potential. Media carries special report and supplements. These initiatives have been revolving around a fixed number of enterprises with presence in urban centers not even among those small enterprises which are located in suburbs. There are industrial clusters in the periphery of urban centres, which are farer than the geographical distance when the matters of institutional services and seminars come up. The poor level of awareness among them is the direct results of urban centric institutional approach and inefficiency of the respective industry or cluster associations. Ideally the lenders and promotional institutions should have built relationship with Regional Industry Associations or cluster associations to reach out to the manufacturers.However, Ecostar Business has taken a different path by moving closer to them to understand their issues in real sense and gathering information from institutions to ascertain how seriously their efforts work on the ground. The team travelled a lot, spoke to a large number of entrepreneurs – new and old generation, technocrats and lay businessmen. We travelled extensively, met various types of entrepreneurs, first generation and second generation, very small and fast growing over the last nine months. We also have moved into clusters where there is no influence of policy measures, nor the business units ever have found anything worth while comingtothem. Balaramapuram Handloom cluster, Thiruvanandapuram, Kerala, where we found rapid depletion of business units, is one of the best examples.That is a potential cluster as the brand name of products manufactured by more than a dozen currently surviving units in the cluster is still broadly appealing.The Balaramapuram Handloom cluster has a legacy of more than a century with many ups and downs in their history and without having enough attention given on them. It is a big brand in the ethnic clothing segment. We have seen many Regional Industry/Manufacturing Associations functioning in such a way that its own members are tired of the unrelenting committees. “They are only concerned about annual fees,” one of the Manufac-turers’ Association memberstold our Survey Team. “Our Manufacturers’ Association is unable to present our issues to an appropriate authorities for necessary actions. They are not even bothered about lack of basic necessities that we need around us as a business unit. When various authorities knock at our doors and harass for extracting bribes Associations must make it as common issue. Unfortunately no one looks at it. Once we bring this matter to their attention,they would say those were individual issues which we were not supposed to act on. The old thinking of the Association and some of the long time members in the committee have made themselves huge liabilities for the members,” one of the members of a Manufacturing Association, in Mumbai suburban region, which has huge numbers said.

On the other side, rapid advances in information technology have given rise to new business opportunities in the MSME segment, especially around organized retail, ecommerce, entertainment etc. and their derivative segments. Incubation centres could incubate innovative ventures.While some are growing rapidly, a thin number is falling on the wayside. India’s favourable demographic advantage has opened space for innovative business models. Such business models incubated are taking off well. In tune with the footsteps of highly successful models like Flipkart and some called unicorns promoted by young technocrats,innovative models are finding roots. While media has given considerable attention to the new economy segment in the name of innovation, the old economy segment is given inadequate attention. Our study found, the inadequate media attention keeps good business models of old economy behind the limelight. This has resulted in emergence of “TwinTracks” in the MSME segment,one comprising of old economy enterprises and these condcomprising new age economy.The challenges for the old economy lending are thin balance-sheet, non-availability of authentic data and lack of collaterals where mitigation is done through ring fencing of cash flows, corporate tie ups,individual/portfolio guarantees under MUDRA, Stand-Up India and CGTSME schemes. The new economy enterprises on the other hand require a paradigm shift in the process of credit underwriting. The business models of these companies, calls for development of credit models based on turnover, cash flow, digital data points and alternate data as compared to the earlier practice of balance sheet based lending.