Credit and Finance for MSMEs: A financial literacy gap has emerged as another key barrier to financing. Fifty-five per cent of HCMs do not have clarity on the various financial instruments available in the market and how to access them.
Credit and Finance for MSMEs: About 78 percent of India’s handmade and craft-based MSMEs (HCMs) struggle to access working capital for their daily operations, said the report “Financing a Handmade Revolution: How Catalytic Capital Can Jumpstart India’s Cultural Economy” by the ecosystem enabler for artisans, 200 Million Artisans.
These findings are part of a study that interviewed over 70 investors, ecosystem actors, intermediaries, and enterprises. Almost 516 craft-led MSMEs related to retail brands and social/creative enterprises participated in a pan-India survey.
Handmade and craft-based MSMEs (HCMs) are small and social, creative, and impact enterprises working in the craft manufacturing and handmade sector, employing artisans and creative producers across fashion, home decor, cultural experiences, craft-tech, culture-tech, and more.
The survey reveals that only one out of ten enterprises is able to access finance when required, despite 91 percent being open to external funding. In fact, 88 percent of the surveyed HCMs had to self-finance their operations, limiting their growth potential.
The report highlights that HCMs have unique and diverse financing needs that traditional collateral-based funding is unable to meet. “Unlike traditional tech-based startups, HCMs need risk-adjusted or high-risk capital for growth, expansion, and experimentation. Impact-linked investment and similar financing instruments available in the market often come with stipulations that do not allow HCMs to address the necessary operational gaps, throwing them into a capital starvation cycle,” said the report.
No wonder, 45 percent of HCMs avoid approaching banks for funding, 55 percent have faced issues in raising unsecured credit, and 61 percent are unable to find capital without excessive paperwork.
Since the cost of risk capital is higher, 48 percent of HCMs accepted struggling to find investors who will accept lower returns compared to commercial investors.
A financial literacy gap has emerged as another key barrier to financing. Fifty-five per cent of HCMs do not have clarity on the various financial instruments available in the market and how to access them.
The report suggests the critical role that catalytic capital can play in spurring investment, not only to help small businesses and MSMEs become capital-ready but also to address their unique needs. Catalytic capital is investment capital that is patient, risk-tolerant, and flexible according to the requirements of the enterprises.
“During the course of this research, our team witnessed the emergence of Handmade 2.0. This resurgence is being led by a young and passionate cohort of entrepreneurs, especially women, who want to build purpose-driven craft-led businesses that also take India’s creative producers and artisans along. The time is truly now to finance India’s creative and cultural economy and its many MSMEs”, said Priya Krishnamoorthy, Founder and CEO, of 200 Million Artisans while launching the report.
According to 200 Million Artisans, an estimated 20 crore Indians are employed directly or indirectly by the creative manufacturing and handmade sector.
