Credit & Loans: Dissecting Dilemma Of India's Small Businesses

“Any time is a good time to start a company.” But is entrepreneurship smooth sailing, or is it the job of someone having nerves of steel? Is the Indian middle class having overcome their fear of taking credit, or are they still having zero appetite for taking credits? What are the various avenues available for small-scale entrepreneurs to raise capital for creating their businesses? The recently held Rizing Equality Entrepreneurship Forum, Delhi chapter brought together industry experts, startup founders, government officials, and top bankers to discuss the intricacies of entrepreneurship and the credit facilities framework of government and private banks.

CGTMSE: The Guarantee Of Micro And Small Enterprise Loans
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a joint venture by the Ministry of Micro, Small and Medium Enterprises (MSME) and the Small Industries Development Bank of India (SIDBI) to make institutional credit accessible to MSEs. In a brief conversation with BW Businessworld Sandeep Varma, CEO, CGTMSE talked about the mechanism of CGTMSE. He said "Collateral unavailability has always been a problem for small-scale entrepreneurs to start their venture, and it becomes an excuse for bankers to not provide loans. But with the advent of CGTMSE, if any loans become bad, then as a guarantee, CGTMSE provides 75-85 per cent coverage of the loan to the lender on behalf of the borrower."

He added that one of the major mandates to set up CGTMSE is to remove the regional imbalances so that more startups and business ideas come from every nook and cranny of the country. In the regions that are identified as credit deficit areas by the RBI, CGTMSE provides a more liberalised framework to make credit easily accessible by providing 10 per cent more coverage and fewer processing fees as compared to other areas. In Assam and Manipur, CGTMSE is providing 100 per cent coverage with the partnership of state governments. 75 to 85 per cent coverage is done by CGTMSE and the rest is assured by state governments.

Notably, collateral is a worldwide problem for lending in the MSME sector, and CGTMSE has proved pretty beneficial in resolving this issue, Varma explained. According to him, till FY 2020-21, the government used to guarantee only Rs 30,000-Rs 35,000 crore loan per annum. But in FY 2022–23, the government has guaranteed Rs 1 lakh crore, and in FY 2023–24, the government has guaranteed Rs 2 lakh crore. It shows that the acceptability of credit guarantee schemes has improved substantially. Bankers are also seeing merit in the scheme.

Is Credit A Good Thing? Dissecting The Dilemma Of The Middle Class
India's middle class has traditionally shied away from taking credit and loans, a mindset that stifles innovation and entrepreneurship. To transform from a nation of job seekers to job creators, it's essential to overcome this aversion and foster a culture that views credit as a catalyst for growth and opportunity. In this context, Shrija Agrawal, Founder, Rizing, an entrepreneurial information network said, “There is a stigma attached to taking money from banks. We have always seen bank lenders as people who will come after us in a very, very bad way if we are not able to repay our loans.” 

However, she added that now even the banks are trying to change their perception among borrowers. Earlier banks decided the loan processing based on their one-to-one interaction, but with the advent of technology, the entire database regarding the credit history of borrowers is available at your fingertips. 

Notably,  this credit history helps lenders process loans easily for customers. There is a shift happening in the mindset of both lenders and borrowers, and the aversion towards taking risks is decreasing. In response to the same issue, Varma said, “We have been told from the beginning that don’t borrow; borrowing is a bad thing. Perhaps the last generation has seen that people have borrowed and burned their fingers, and the repercussions of borrowing are not limited to you only; it impacts your family as well.”

But, the solution is not that we shouldn’t borrow; the wise thing to do is borrow with a purpose. “We need to have a solid project in mind, and then only we should think of borrowing,” he added.

Towards A USD 5 Trillion Dream
“The government is recognising if this country has to become a USD 5 trillion economy by 2027, there is no way on earth you can ignore the cohort of MSMEs. They have to grow,” Shrija said.  With the collaboration of both government and private players, be it Startup India or Shark Tank India, there is an immense positive change in the mindset of Indians towards creating businesses. The result of these can be seen when start-ups are emerging from remote Tier 2 or Tier 3 cities. This is a much-needed change, and this change should be nurtured more efficiently.

Shrija said that Internet penetration, universal access to finance through Jan Dhan Yojna, and the rise of social media are three major shifts that have revolutionised and disrupted in a positive way the entire landscape of entrepreneurship.

Meanwhile, talking about the union budget 2024-25, Siddharth Ugrankar, CEO, Qila.io said, “There was nothing out of the ordinary for my industry per se in the budget. I think everybody is quite angry regarding the removal of indexations on property. I am sure that there is an understanding of why they did it; I don’t agree with the way they did it." He added that there is a big push coming for MSMEs. Giving access to capital for MSMEs is going to be very big.