From `100 trillion total credit, only 25% goes to MSMEs
The report came out with interesting findings on MSMEs, as it suited the theme of the conference: Providing financial services to SMEs in an increasingly digital ecosystem. It says currently, out of the total formal credit of around Rs100 trillion, only 25% is extended to MSMEs. MSME formal credit is growing fastest for loans slabs between `200,000-`10 million, points out Kejrival.
Nano, mini and micro loan segments (< `10 million loan size) account for 40% of credit demand (primarily on account of proprietors borrowing for business). The mini and micro segments lead in credit growth, registering a significantly higher yoy growth compared to overall small ticket loans. This can be attributed to the increasing formalization and digitization of MSMEs.
The report says digital MSME lending accounts for only 4% of total MSME lending at present. However, it is expected to increase to 21% over the next 5 years. This significant jump will close the gap with digital retail lending, which is expected to reach around forty-eight percent of total retail lending in five years. With a high degree of variability in the quality of assets in the MSME segment and the small ticket size of advances, success in this market will belong to players who have the resources and capabilities for reliable credit underwriting, and a comparative cost advantage through end-to-end digitization.
While new private banks are leading in overall lending to MSMEs, public sector banks are leading in lending to micro enterprises, finds the study. GST has accelerated formalization of MSMEs in a big way. MSMEs engaged in rendering non-trade services like financial services and education are early adopters of digital channels and have shown a higher degree of formalization. The percentage of MSMEs using digital channels has increased from 41% pre-GST to 47% post-GST. The advent of advanced analytics along with the everincreasing data sources can help build models for robust credit decisioning for this segment, solving one of the most crucial roadblocks in lending to this segment.
In the southern states as well as states like Rajasthan and Punjab, the share of MSME credit as compared to the total credit is quite low. Banks have recognised this opportunity and these states have shown a healthy growth in MSME credit in FY18, but room for growth in MSME credit still exists, predicts Kejrival.