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Credit and Tabula Rasa MSMEs



AC Equipment is a Pune-based manufacturing enterprise involved in supplying automotive parts to one of the bigger firms, Original Equipment Manufacturers (OEMs) based in the city. It has been in existence for over 2 years with an annual turnover of more than INR 150 lakhs. It has in-hand orders but is unable to work on them due to paucity of inventories. It has been unable to procure the requisite inventory due to shortage of working capital. The enterprise has less than INR 20 lakhs as its working-capital funding from a scheduled commercial bank. This is a typical issue faced by thousands of other MSMEs across the Maharashtra Industrial Development Corporation (MIDC) in Pune and across Industrial areas in the country. It is sort of a chicken and egg problem in the MSME sector.


Tabula Rasa MSMEs are kept at bay by the financial institutions. Tabula Rasa in Latin means ‘a clean slate’. We have used the phrase here in connotation with the greenfield MSMEs and infant MSMEs who need support and financial assistance to sustain and bloom into a productive enterprise contributing to the employment and GDP of the country.


From the perspective of a bank, the MSMEs without the vintage of three years are not yet ready for a working capital loan. Their businesses are not well established, working capital cycles are not known, receivables are not yet streamlined and their management roadmap is unclear. Unfortunately, in an era of startups where VCs are burning cash on millennial ideas, there is a complete apathy towards traditional sectors of MSME.


When we look at the enterprises, there might be many of them which have competencies to deliver but are limited in their financial access. Hence, they may not be able to grow and sustain for three years.


Our focused group discussions (FGDs) with the promoters of such MSMEs exposed some of these real issues and a more comprehensive approach is needed to solve them. If we need an Atma-Nirbhar Bharat, then we need these MSMEs, for we cannot be a giant economy only with digital startups. We need to be strong and self sufficient in manufacturing be it textiles, food processing, fabrication and so on. Regulatory Apex Institutions, Financial Institutions, Technology Enablers and the enterprises all need to come together to solve these issues. Just a Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme based on the vintage, AI/ML technology based on clusters or a surrogate-based credit assessment will not be sufficient.


As we investigate further across MSMEs of various sectors in the states of Karnataka, Maharashtra and Gujarat, we hypothesize that there is a ‘Hurdle Factor’ which needs to be crossed for enterprises to become stable, and access finance at cheaper costs. Hurdle Factor, as defined by our research, determines the current drift of the particular enterprise from the defined standards of financial assessment. We are building a solution to adjust the risk with the Hurdle Factor and therefore make financial assessment easier and with lesser hassle.

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