MSMEs bounce back stronger post-pandemic

A study by fintech lender NeoGrowth among its MSME customers indicates that the pandemic has indeed made them stronger and they have recovered from the shock:

Arecent study has indicated that MSMEs have been able to bounce back stronger post-pandemic with timely support. The study, ‘ The MSME Insight Report 2022 - Rising in the Face of Adversity’ done by the MSME-focused fintech lender NeoGrowth, found that: i. March 2022 saw MSME credit demand from non-metros going back to pre-covid levels whereas metros are still lagging ii. 46% MSMEs across India needed financial support to mitigate the immediate impact of covid iii. MSMEs were better prepared in the second wave of the pandemic with only 30% requiring support in wave 2 vs wave 1 iv. 75% of MSME borrowers who upgraded their pre-pandemic loans opted for a higher principal loan amount

It was also revealed that MSMEs’ credit demand in Bengaluru and Chennai exceeded pre-pandemic levels.

NeoGrowth carried out the study assessing some 40,000 MSMEs from 25 cities in the country across 88 unique industries during March 2020 - March 2022. The study covered MSMEs in both discretionary and non-discretionary demand-oriented businesses and examined the challenges they encountered during the pandemic, the impact of support measures on their recovery, the shift to digital means of doing business, and their resilience in these two years.

SURVIVAL TO REVIVAL

The company’s Whole-time Director and CEO Arun Nayyar said the study shows that it is ‘survival to revival’ saga and the vital lessons learned from the pandemic have transformed the way businesses operated and fast-tracked their move to digital. The credit demand from MSMEs is back to a healthy level, he added.

The study identified 3 stages in the journey the MSMEs underwent during the pandemic period - Stage 1: Disruption and MSME Mindset, Stage 2 Business Impact and Support Structure and Stage 3 Revival and Back to Growth.

WORRY OVER CREDIT SCORES

In Stage 1, it was found that at the onset of the pandemic in early 2020, 97% of the MSMEs surveyed from NeoGrowth’s customer base of 16,087 MSMEs were worried that their credit scores would be negatively impacted due to non-payments. While 65% MSMEs were confident of business recovery within 3 months, 93% of MSMEs planned to reduce operations costs to manage liquidity and only 1% expected a complete shutdown of their business operations. Overall, 25% of impacted MSMEs were run by women entrepreneurs.

During this time, NeoGrowth had launched an industry-first initiative, Sanjivni, to aid the bounce-back of MSMEs with empathy and empowerment. The program proactively extended financial and nonfinancial assistance through unique and customized solutions for all types of customers irrespective of the severity of the impact.

FINANCIAL SUPPORT

In Stage 2. it was estimated that 46% of MSMEs across India needed financial support to mitigate the impact, with higher demand from non-metros than metros. Financial support availed by nondiscretionary MSMEs was lesser compared to other businesses. Maharashtra was the worst affected state during the first wave and close to 50% MSMEs in Pune and Mumbai needed financial support.

However, MSMEs showed grit and they reinvented themselves by adopting digital solutions for their business, acquiring new skills, diversifying their customer base, and adopting digital lending for their financing needs.

BETTER PREPARED

In Stage 3, when the second wave of the pandemic happened, the MSMEs were well prepared and could adjust to the new business environment. Only 30% MSMEs required support in Wave 2 vs Wave 1. 63% of MSMEs continued to show intent to honor their commitment despite being severely impacted or facing a business shutdown.

The study established that support extended to MSMEs not only helped them manage their cash flow but also resulted in increased collections efficiency for those who availed it. Collection efficiency of those who availed support from May to August 2020 (during the lockdown) through the Sanjivni program went up from 11% during the pandemic to 88% in this period. MSMEs in metros recovered faster than those in non-metros. And as much as 75% of MSME borrowers who upgraded their pre-pandemic loans went for a higher amount with an 80% average increase in the principal loan amount.

The study says that in March 2022, it was observed that MSME credit demand from non-metro cities was back to precovid levels whereas that in metro cities was lagging marginally. Non-discretionary demand-oriented business segments such as Petrol pumps, Infrastructure, and Auto recovered faster than consumer-facing and discretionary demand-oriented businesses. The credit demand by MSMEs in Bengaluru and Chennai exceeded pre-pandemic levels.

The study concludes that traditional ways of borrowing and conducting business had to make way for new-age digital channels and digital lending became increasingly important to infuse the required funds into the MSME ecosystem. Innovation and customization will be the way forward for fintech lenders to deliver enhanced value to small businesses, throughout their loan journey, says the study.