Covid-19 crisis presents an opportunity for new lending players in MSME space

Even as existing sources of funding dry up for MSMEs, time appears to be ripe for alternative funding platforms and emerging players, including fintech companies, to support them in business continuity post the Covid-19-induced lockdown.

Though the Central government and the RBI have announced various measures to support MSMEs to come out of the crisis caused by the pandemic, there will be a significant increase in the demand for working capital and business loans as the impact of the crisis on some sectors will last beyond three months.

Unsecured lending is not going to be the same after the lockdown since business stability itself will be circumspect. Commercial banks with better liquidity are expected to lend more to MSMEs, while other established financial institutions with a deep understanding of MSME lifecycles are also expected to help them stay in business.

But alternative funding platforms and emerging lending institutions can fill a vast gap in small business segments.

Cash flow

“The biggest challenge for small- and medium-sized companies is the cash flow, and each company need a fresh infusion of working capital to restart the operations,” says Prabhu Dhamodharan, Convenor of Coimbatore-based Indian Texpreneurs Federation.

Armed with technology, many emerging players indicate that they are well-placed to serve the needs of small businesses in the days to come.

“We plan to prioritise meeting the needs of existing customers for their additional requirements before tapping the demand from new customers. But, in general, we feel, while the opportunities would be high, institutions could tend to tread cautiously, given the constraints in liquidity, and asset quality concerns,” says D Arulmany, MD and CEO of Veritas Finance, an emerging NBFC focussed on the MSME sector.

MSME-lending fintech platform FlexiLoans.com has been helping small business owners and underserved categories, particularly in tier II and III markets in India. “We are also working on identifying new loan eligibility, especially when business has been virtually zero in the last two months,” said Manish Lunia, Co-Founder, FlexiLoans.com.

Bengaluru-based Kinara Capital, which provides small business loans of up to ₹25 lakh, states that MSMEs are the backbone to reviving local and national economies.

“We already have a range of EMI-based and credit line facilities for MSMEs, available for the short-, medium- or long-term tenure, and without any property collateral,” says Hardika Shah, founder and CEO, Kinara Capital.

Meanwhile, Dhamodharan points out that alternative funding platforms need to understand a sector’s model of working and design products suitably to the exact needs of the sector. Even within the textile segments, spinning and apparel have different needs.

“They need to design sector- and cluster-specific products. Federations like ours have already started engagements with some non-traditional platforms to explore the funding options,” he added.

Meanwhile, these lending institutions also hope that regulatory intervention would happen, primarily in easing the norms for NPA recognition and stage 1 and stage 2 accounts. Incentivising and supporting institutions focussed on lending to the MSME sector would go a long way in reviving the sector.

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