Credit and Finance for MSMEs: Freedom has many facets, but at its core lies in the availability and ability to exercise choice and experience independence. This thought lies at the basis of the need for an individual’s financial independence as well, for which we can take MSMEs as the perfect example. MSMEs form the backbone of our economy, making up almost 50 per cent of the products exported by India as reported by the India Brand Equity Foundation (IBEF). Additionally, over 65 million MSMEs in India provide employment to 110 million individuals, many of whom qualify as unskilled or semi-skilled. Many of these small businesses sustain the livelihood of not just individuals, but their families as well.
Every small grocery store, local tailor, and sweet shop make up this large part of our community. However, their path to sustaining and expanding their venture is often riddled with obstacles. Dreams and creative business ideas often lose their steam when they lack the appropriate building blocks for their business. Lack of family support, limited access to resources, confusing financial processes, and insufficient capital or assets are common problems faced by these entrepreneurs. The absence of financial mechanisms that are adapted to their needs restricts their independence, often forcing them to shut operations, function within a limited scale, or become dependent on informal or exploitative lenders.
Systemic issues have created a lending gap between suitable borrowers and lenders of around Rs 20-25 trillion or $267-334 billion. This massive number represents a loss for all stakeholders, with financial institutions missing out on eligible customers as well as borrowers not getting the required resources to flourish. Although each business comes with its unique story, common problems faced by MSME owners paint a picture of structural issues that inhibit their financial freedom.