COVID-19: Future of MSMEs in Post COVID Times | AU Small Finance Bank
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Future of MSMEs in post COVID times

     
    The Micro, Small and Medium Enterprises (MSMEs) fuels the turbine of Indian economy. About ~633 Lakh MSMEs contributes over 28% in GDP of Indian Economy. The sector provides ~11 crore jobs in rural & semi urban areas of the country.
     
    Despite this, the sector’s sluggish growth impedes it’s contribution in economy of reducing regional imbalances & assuring more equitable distribution of national income and wealth. Looking closely, you will notice more than 99% of total estimated number of MSMEs are micro enterprise whereas Small sector and Medium sector accounts for 0.52 % and 0.01 % of total estimated MSMEs, respectively.
     
    ~51% MSMEs are vested in rural areas whereas ~49% are in urban areas.
     
    Comparatively, most of these enterprises are located in rural  areas, where poor infrastructure, lack of financial and technological assistance, unskilled labour, limited access to market widely afflict the sector.

    Enterprises in the sector, widely face credit crunch and hurdles in business expansion. Further to this, lack of financial literacy, lack of business experience, no or less availability of documents, widens the gap between MSMEs and the formal channel of financing.

    Due to this, MSMEs rely on informal sources of financing like money lenders, family/friends and relatives despite higher rate of lending. This trend further pushes the sector into debt traps. In some cases, people get duped.

       Pull-Backs for MSMEs

    • Lack of adequate and timely access to finance – formal and informal both.
    • Poor infrastructure for business
    • Exiguous access to market
    • Low technological expertise
    • Non availability of quality human resource
    • No or less Skill development & capacity building trainings
     
     
    Effects of COVID-19 Outbreak on MSME
     
    The sudden outbreak of COVID-19 & nationwide lockdown have further made these enterprises vulnerable.  Their nature of work, small setup, meager scale of operation & poor financial health puts them in a tough spot.
     
    Meanwhile, the government has tried to salvage the situation and boost the sector by injecting more money into the sector by announcing 3 Lakhs package as a credit guarantee to financial institutions. This has certainly built the confidence of the banks and other financial institutions.
     
    Renewal of MSMEs would be possible by access of adequate finance, capacity building and building a knowledge on handling digital channels of banking as well as of trade. MSMEs need to draw up a prudent financial strategy during such tough times and focus should now be on digital growth for survival and an effective bounce back for businesses, keeping long term growth and planning in mind.
     
    AU with its financial literacy & technological initiatives, strives to educate MSMEs on different mode of banking, bringing an ease in banking.
     
    “We came into existence to serve the unserved and underserved. Lending to the priority sector is embedded  in our design”
     
     
    AU Bank’s Approach towards MSMEs Financing
     
    AU started its business by funding to MSME sector, understanding the ecosystem & challenges, AU developed the products to fund the micro & small enterprises, without any ITR or income proof, and with no CIBIL records.
     
    Bridging the credit gap in rural India has always been at the core of AU Small Finance Bank’s objectives. Till date, AU has benefitted more than a million people with a focus on Priority Sector Lending (PSL) across 11 states of North, West and Central India.
     
    The Bank’s core customers include low-and middle-income individuals and credit-worthy micro/small enterprises that possess business potential but are unable to avail financing from formal channels.
     
    AU offer a variety of products for its secured business loan customers. These include fund-based products like secured and unsecured term loans (WHEELS), overdrafts, cash credit facilities and non-fund-based products like bank guarantee and letter of credit. AU Bank has emerged as one of the leading lenders to MSME segment and has a long way to grow in this segment.