India MSME Finance Market Report – 2020 : Ken research
The growth of MSME industry in India has led to an increase in demand of business loans. With an elevation in number of entrepreneurs in the country and a rise in financial literacy, a higher number of companies have looked forward to obtain finance from banks and other financial institutions. The increase in application and approval of loans has also given rise to the total outstanding loans. The mount of finance that has been outstanding from MSMEs has witnessed an increase from INR ~ illio i the ear FY’ to INR ~ illio i FY’ . The total outstanding credit, which comprised of both formal and informal sectors, gre steadil till FY’ ith a additio al i flu of foreig i est e ts. In order to expand the foundation of MSMEs in India, more number of fi a ial i stitutio s pro ided loa s to e trepre eurs duri g FY’ FY’ .
Ho e er, due to the parlia e tar ele tio s i the ear FY’ , olatilit i both credit approval and payment was observed in the preceding year. With an anticipation of shift in political environment in the country, lenders were observed to practice restraint in providing credit to MSMEs. Also, MSMEs were observed to relieve themselves of outstanding loans due to e pe ted i rease i i terest rates i the ear FY’ . This led to a de li e i outsta di g redit i the ear FY’ a d stood at INR ~ illio . It represented ~ decline from the previous year. But, with the consistent growth in the Indian economy, MSMEs borrowed more in the subsequent ears, FY’ ad FY’ hi h i reased the total outsta di g a ou t to INR ~ illio i FY’ .
MSMEs have played a crucial role in the Indian economy and have contributed nearly 45% in industrial output and 40% in exports. Apart from contribution to the economy, Indian MSMEs have also created more tha ~ illio jo s as of FY’ . The de a d for redit has rise due to increase in the number of MSMEs as well as the expansion of already established MSMEs. In order to maintain this momentum MSMEs have demanded credit facilities. The increase in credit demand from INR ~ illio i FY’ to INR ~ illio i FY’ has represe t the su sta tial growth potential of the Indian MSME sector.
The demand for credit has been fuelled by rise in turnover and credit approval rate. Higher number of entrepreneurs have started to follow compliances and showcased strong credit history to become eligible for financing. This can be observed from the stable year-on-year growth from FY’ to FY’ . The total de a d for redit hi h stood at INR ~ illio i FY’ olstered to INR ~ illio i the follo i g ear. The su eedi g ears of FY’ a d FY’ also it essed a ual gro th rates of ~% and ~% respectively. I FY’ , the a ou t of redit outstanding from micro enterprises was observed to hold ~ % of total outstanding in the market. On the other hand, Small and medium enterprises held ~% and ~% share of the total credit outstanding in the market.
A out ~ % of MSMEs ere registered i the I dia arket i FY’ .I FY’ , registered o pa ies held ~% share of ithsta di g redit i the Indian market. This represented INR ~ billion worth of credit. I FY’ , manufacturing companies held ~% share of withstanding credit in the Indian market while services companies held ~%. This represented INR ~ billion and INR ~ billion worth of credit for manufacturing and services companies respectively. It has ee it essed that duri g FY’ , a ks held the largest share in terms of outstanding credit to MSME at ~%, NBFCs held ~% and MFIs held ~ share. It has been witnessed that during FY’ , Mo e le der held ~%, Chit Fu d ~% a d Fa il a d Frie ds held ~% share in terms of outstanding credit to MSME.
Public Sector banks enjoy interest advantage over NBFCs and MFIs. Lending to MSMEs has been a part of the priority sector lending and the banks comply with regulatory norms of the RBI. In order to drive the business growth, private banks have shown an interest in lending to the MSME se tor. Duri g the period of FY’ to FY’ , NBFCs ha e fo used o MSME sector due to its high profitability. NBFC credit to the MSME sector has gro sig ifi a tl duri g FY’ -FY’ hi h a e see fro the growth in total amount of credit withstanding. NBFCs factor in the potential of the company besides the balance sheet and other financial statements to evaluate the credit worthiness of an enterprise.
I the ear FY’ , Bajaj Fi ser led the arket i ter s of total fi a e outstanding with ~% share. Bajaj Finserv was followed by Religare Finvest, which possessed a market share of ~% in the same year. Bandhan Bank was the leader of the industry with ~% share of the gross loan portfolio GLP . SKS Mi rofi a e ith ~% share of the GLP i FY’ . I FY’ the GoI has adopted a robust agenda on policy reforms, skill development and financial inclusion. The specific measures include launch of MUDRA Bank to provide collateral free loans backed by credit guarantee cover, creating an online platform for e-discounting of trade receivables, creating a Venture Capital fund-of-funds (FoFs) with SIDBI, creating India Aspiration Fund (IAF) and SIDBI Make-in-India Loan For Enterprises (SMILE) with SIDBI among others.
Along with government initiative, private sector financial institutions such as private banks, NBFCs and MFIs will look forward to provide more digitization of credit facilities. Future Projections have been reached out using scenario analysis. Financial technology, better known as Fintech, has exploded over the last 5 years. Globally, the investment in Online MSME finance market has grown by about ~ % y-o-y and more than USD ~ billion was ploughed into startups in the online MSME finance market space in FY’ alo e. With the i flu of i est e t, fi a e a d a ki g are being transformed by innovations like peer-to-peer models, crowd funding, and contactless payments. The market of financial technology companies is at a very nascent stage. There are only a handful number of players in the online MSME finance space who provide MSME credit.
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Source: https://www.kenresearch.com/banking-financial-services-andinsurance/loans-and-advances/india-msme-finance-market-report/7200-93.html
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