While raising capital has always been the priority, it is with responsibility of financial discipline that MSMEs can reach out to banks and other lenders for collateral-free loans.

Credit and Finance for MSMEs: The Day 2 of Financial Express Online’s SME Artha event saw panelists discussing how growth capital can be reimagined for SMEs and unanimously stressing on the fact that financial discipline is embedded within the organisational culture of any successful business. It is generally never easy for a small business to secure capital without collateral. The experts dove deep into the issue of scaling up with financial discipline for MSMEs and also how financial institutions need to look at initiatives like collateral-free loans for MSMEs.

As part of the panel, Ashok Saigal, MD, Frontier Technologies and Co-chairman, CII National MSME Council; Pankaj Gadgil, Head of Self Employed Segment, SME and Merchant Ecosystem, ICICI Bank; Rajan Raje, Chair, MSME Forum, Bombay Chamber of Commerce & Industry and Group CEO, Nichem Solutions; and Ravi Varanasi, Group President, NSE, also exchanged views on the credit-related challenges faced by MSMEs and possible solutions including financial management. . 

Financial discipline is all about getting one’s numbers right and it requires setting clear goals, periodic measurement of performance, analysis of variances and taking corrective actions, and ultimately avoid future problems and prevent risks.

“I believe that technology is only 25 per cent  of the business and the balance 75 per cent  is finance and marketing. Unless businesses do not treat the whole mechanism of finance with respect, there cannot be any growth whatsoever. One needs to understand the money that businesses get from their buyers needs to be circulated to carry on the business. In the process, (they should) innovate and adapt to the new changes in order to grow,” said Raje.

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While raising capital has always been the priority, it is with responsibility of financial discipline that MSMEs can reach out to banks and other lenders for collateral-free loans. Even as there has been a number of credit scheme for MSMEs by the government, the latter had last year announced a Rs 50,000 crore Fund-of-Funds to facilitate the flow of equity to 25 lakh MSMEs, besides the Self-Reliant India Fund (SRI Fund), among others.

Talking about the challenges that hold MSMEs back, Saigal said, “While SMEs are now producing quality products with the available resources, the challenge comes in the next stage when they have exhausted their resources and do not have any capital to show as collateral for the next set of loans to enable their growth.” 

Saigal advocated for “collateral free loans to MSMEs who have had a good relationship with the said financial institutions and have cash flow to show”. 

ICICI Bank’s Pankaj Gadgil, in his remarks, said that they are focusing on transaction convenience, turnaround time, and quality of platforms, which is what MSMEs look at, in addition to adequacy of capital, when devising solutions.

There are other ways for small businesses to raise capital such as going public, as NSE’s Ravi Varanasi pointed out even as most MSMEs are wary about it. He also pointed out that while its a long way to go for MSMEs to start going public, there has been considerable rise in numbers. “During the period between 2016-2018, we witnessed a significant jump in the number of companies moving from private limited company to a public held company. In between BSE and NSE, we have close to 600 odd companies who raised capital worth around Rs 7000 crore,” he added.