How are MSME Loans Boosting the Indian Economy?

Micro, small and medium enterprises (MSMEs) are touted as the pillars of the Indian economy owing to their contribution to GDP through manufacturing and exports. The MSMEs in India have also been acknowledged for creating employment, especially in rural areas. There are 633.88 lakh MSMEs in India, out of which nearly 324.88 lakh MSMEs are operating from rural areas, whereas 309 lakh enterprises are based in urban areas.

Despite their contribution, MSMEs struggle to reach their full potential in growth and scalability due to a lack of funding. While there are multiple government financing schemes for MSMEs, not every business can qualify for it. This is where funding options such as MSME loans come into play.

To understand how this loan option helps boost India's economy, you first need to become familiar with the sector's contribution, opportunities and growth prospects.

MSMEs' Contribution to the Indian Economy

There is no denying that the contribution of the MSME sector to India's economy has been quite significant. With over 63 million MSMEs in India, the sector accounted for nearly 30% of the country's GDP in the FY20. Additionally, it has been effective in generating employment opportunities for many.

In fact, as per the Ministry of Statistics & PI, from July 2015 to June 2016, the sector employed nearly 111 million individuals. Similarly, when compared to large-scale companies, the sector, in general, has promoted industrialization in rural areas and at minimal expenses. As a result, it has also contributed to the growth of India's economy.

If you weigh in MSMEs' contribution to the country's exports, it has a strong position to hold. The MSME sector singlehandedly accounts for nearly 40% of the country's total exports. It also accounts for 6.11% of the GDP from the manufacturing sector and 24.63% from its services sector.

What are the Opportunities for MSMEs?

The following reasons add to MSME's prospects and opportunities in India:

• The sector is less capital intensive, this allows entrepreneurs with limited means to start a venture without accessing a hefty sum and exhausting entire savings.
• MSMEs in India have access to government support through grants, training, and favourable policies. They help businesses to improve their quality of service and offerings and help scale up their operation successfully.
• Several government policies such as the Prime Minister Employment Generation Program, Credit Guarantee Trust Fund for Micro & Small Enterprises, Credit Linked Capital Subsidy Scheme, and Gram Udyog Vikas Yojna are launched to promote MSMEs' growth.
• Designated reservations for small scale businesses and exclusive manufacturers enable MSME owners to secure big projects and make the most of their skills to generate revenue.
• The ease of procuring machines, raw material, skilled workforce, latest technology and technical know-how through sponsored programmes or easy financing effectively boosts production capacity.
• Prompt access to tech, tool and testing support help MSMEs to make the most of available technology to improve their operational quality.
• The Government announced campaigns such as SAMBHAV, Skill India, Digital India, Startup India, and Made in India to facilitate the growth and productivity of the MSME sector.

MSME Loans & Indian Economy

While plans and policies are many, the route to access the benefits is often not scalable for small businesses. This is where MSME loans in India come in to fill the working capital gap and help small businesses to access funds to boost their operations.

Here are some ways in which MSME loans help businesses:

Access to high loan quantum: NBFCs extend high loan quantum to MSMEs to help them account for numerous operational requirements and help keep business afloat. At SBFC, MSMEs can access up to Rs. 75 lakh to meet their business’ financial needs and requirements.

Allowing to leverage assets to raise funds: SBFC enables businesses to leverage assets to secure a loan against its value. This allows firms to make the most of their high-end machinery or commercial property to raise funds. Businesses then use the funds raised to grow their venture, boost operations, and more.

Quick access to funds: SBFC disburses MSME loans within 7 days of approval. This helps entrepreneurs accept bigger orders, replenish stock, scale-up operations, and boost profits accordingly.

Fund latest technology and training: High loan value can further help businesses avail of the latest technology and equipment. It also helps to appoint skilled labour and provide proper training to staff.

Collectively, these perks help MSME loans unlock their full potential and boost their revenue source. In turn, it helps the sector contribute to the economy and help it grow.  

Conclusion

As per reports, the MSMEs in India hold the key to a US$ 5 trillion economy; but to boost the overall growth of the country, the number of large-scale businesses has to triple.

However, the desired goals seem scalable as over 1000 mid-scale ventures continuously scale their venture up. Moreover, the budget allocated for the MSME sector in FY22 witnessed a jump from Rs. 7572 crores in FY21 to a whopping Rs. 15,700 crores.

Needless to say, financial support from government along with favourable policies can give MSMEs the boost to thrive. MSMEs that cannot opt for such assistance can reach out to NBFCs such as SBFC to access capital to meet their requirements.