India's Cash-strapped MSMEs: What's Cooking Between Vi Business & PayU

As India's small businesses continue to face delayed payments, debt and many other issues, Vi Business, the enterprise arm of Vodafone Idea and PayU, a digital financial services provider, have come together intending to help cash-strapped micro, small and medium enterprises (MSMEs) into their digital journeys, by providing them payment solutions and credit facilities.

Experts from the sector have time and again highlighted that there is a need for financial aid to address delayed payments and credit gaps. India has over 70 million MSMEs, creates over 111 million jobs and contributes nearly 30 per cent to the nation’s gross domestic product (GDP). So, can this collaboration help them? Well, the partnership between the two firms is expected to provide digital transformation solutions, payments and financial services solutions to address the growing needs of MSMEs.

While talking to BW Businessworld, Vineet Sethi, Senior Vice President, SMB and Growth Businesses, PayU stated, “Our partnership with Vi Business is a step in this direction that I firmly believe will propel India’s MSMEs into digitisation. Through this partnership, we will provide MSMEs with a bespoke comprehensive suite of business and digital payment solutions, designed to increase revenues and boost efficiency.”

Even Arvind Nevatia, Chief Enterprise Business Officer, Vodafone Idea in a press statement added that with PayU, they are aiming to accelerate MSMEs' growth journey. Vi Business through its ReadyForNext program offers digital tools such as location tracking, Google Workspace, personal cloud storage and mobile security solutions to MSMEs to manage their digital workplace, business and customer engagements.

Rise Of Digital Tech
Almost 60 per cent of MSMEs are planning to digitise their business processes by 2025, a Vi Business study has revealed. It stated that about 43 per cent of MSMEs planned to increase their overall digitalisation budget by 2025. Talking about the market trends in the MSME sector regarding digital transformation, Sethi added that one thing that needs to be talked more about is digital penetration at an individual level, which is on the rise, particularly with digital payments (UPI being the prime example). This trend is also reflected in the adoption of digital tools by businesses, especially among MSMEs, which are increasingly leveraging such tools now, he added.

"PayU is reducing the cost of accepting digital payments, as well as enabling options like WhatsApp, which is ubiquitous among all consumers today, removing friction on both sides, i.e. MSMEs and their customers," he mentioned. However, MSMEs face significant challenges, including the affordability of various business tools, the time required to integrate and adopt these solutions, and poor internet connectivity.

According to PayNearby's latest report, about 36 per cent of MSMEs are struggling with technology adoption and 18 per cent are facing issues with the high costs of implementation. The report also highlighted the positive impact of this digital adoption, with 68 per cent of MSMEs acknowledging improvements in both their business and personal lives.

Another survey by Nasscom and Meta highlighted a similar pattern, revealing that about 65 per cent of tech MSMEs are struggling due to limited awareness about available tools and resources. In comparison, 72 per cent emphasised the necessity for AI training programs underlining the importance of skill development in facilitating adoption. Additionally, financial constraints significantly hinder tech-enabled MSMEs from adopting AI technologies, with 59 per cent of surveyed enterprises citing budgetary limitations as a barrier to investing in necessary tools and resources.

Money Problems
In India, small businesses face a significant hurdle such as limited access to timely finance, with only 12 to 14 per cent of formal credit allocated to them, resulting in a substantial credit deficit of around Rs 45 trillion. The cash-strapped sector has an estimated Rs 10.7 lakh crore which is 5.9 per cent of the gross value added (GVA) of Indian businesses is locked up annually as delayed payments from buyers to MSME suppliers, according to a report by D&B and Game.

Sharing more details about how Vi Business and PayU's integrated payment solutions will benefit MSMEs, Sethi told BW Businessworld it is expected to help them expand their geographic reach without additional capital expenditure and facilitate on-time settlements, critical for running smooth business operations. Notably, PayU has integrated with over 30 banks and NBFCs, allowing MSME merchants to avail credit facilities for purchases.

In the financial year (FY) 2024, the credit demand for MSMEs grew by 35 per cent compared to the previous year, according to a report by Kinara Capital, an Indian fintech firm. The report revealed the immediate plans for business expansion is the primary reason for MSMEs to seek access to formal credit. While all three MSME sectors of manufacturing, trading and services exhibited demand, the trading sector is leading with a 45 per cent increase in credit demand, followed by the services sector at 31 per cent and manufacturing at 18 per cent.