Ten years ago in The Wall Street Journal(WSJ), Bindu Ananth and Nachiket Mor used noise-cancelling headphones to explain the role of finance. ‘Noise-cancelling headphones,’ they wrote, ‘listen and respond precisely to the noises in the environment of the listener and cancel them out instantaneously, leaving only smooth and high-quality music.’ Financial tools can give a smooth and growing net income stream and cancel out the noisy shocks, they wrote.

Millions of MSME entrepreneurs across the country today might be wishing for such a tool. For most MSMEs, revenues have either slowed down to a trickle or completely stopped. Uncertainty around coronavirus and the fear of an impending recession has made the lenders more risk-averse. What remains are — noisy shocks from the coronavirus pandemic and the lockdown.

There are over 75 million small and medium businesses in India, accounting for about 35% of employment and 50% of exports, according to Zinnov. However, there is no strength in aggregate numbers. Even before the coronavirus, they were battered by the Great Indian Slowdown. Their fortunes are tied to the overall health of the economy — investments by larger organisations, consumption and export demand. When they slow down, MSMEs suffer! And in response, they lay off people and shut down their factories and workplaces.

Even in good times, the sector faces hardship. Bank finance is hard to come by, especially to those at the lower end of the pyramid — even as they get put off by complicated procedures and requirements even for simple debt. NBFCs fill in some of those gaps, but still, a large section gets left out. Dependent on family and friends, they also hope for timely customer payments.

The sector also lacks a range of financing products like mezzanine risk capital — which is available to SMEs in more advanced countries, a World Bank report says. While there are laws that require buyers to pay MSMEs within 45 days, reports and surveys suggest that Indian companies often don’t follow it. Without the margins and layers of support available to larger companies, MSMEs get hurt very hard even with smaller changes in pricing, demand, regulations, infrastructural shakeups.

Without access to good headphones, MSMEs often hear only noise.

Can technology solve this problem?

We live in an age of technological solutionism. Given enough data and the right algorithm, we believe that most problems can be solved. Surely then, getting enough data and crunching them using better algorithms powered by AI, should solve the financial problems facing SMEs? Shut out the noise, and leave behind smooth and high-quality music? That’s the tone of narratives; on how problems will be solved by technology.

However, there is a growing realisation that while technology can be an enabler, it cannot solve the problems by itself. For instance, when my colleague Charles Assisi and I were reporting on our book on Aadhaar, we found that to be true in case after case. A technological functionality — say biometric authentication — is only a part of a technology solution. Thus technological solution itself is merely a part of a broader institution; with its own strategic, operational and cultural challenges. And this institution is embedded in a society, a society with its own set of characteristics, behaviour patterns, capabilities and biases. Whether technology works or not depends on all of these.

However, when a designer of a solution takes a more holistic approach — zooming in to take the very local, very human needs into consideration, and zooming out to see the overall picture, and how one element impacts the other, and to identify the most effective leverage points, most damaging bottlenecks — the resulting solutions can have an impact. It demands not a technocratic, but a holistic, humanistic approach to solve the problem. It demands quants and poets, techies and fuzzies, STEM and humanities.

A journalistic approach to capture the ground realities

I will be focussing on six clusters based in Tamil Nadu

• Chennai — Auto components
• Vellore — Leather
• Madurai — Plastics
• Tirupur — Hosiery
• Coimbatore — Foundries and wet grinders
• Tirunelveli — Rice Mills

I will be employing traditional journalistic tools (extensive interviews, field visits, analysis of data) to understand the issues — challenges facing the sector, how they manage their finances, how it impacts their personal lives, given that unlike large organisations, often their personal lives are tied much more closely to their businesses, how they deal with regulations.

The findings will be presented in the form of stories weaved in the analysis and data. Thus the aim would be to increase its usefulness (on the strength of primary and secondary research) and reach (by the way the findings are presented through stories from the field).

This research was developed as part of the Bharat Inclusion Research Fellowship.