Amid the ongoing festive season, experts have said that business loans to India’s cash-strapped micro, small and medium enterprises (MSMEs) are likely to rise by 20 per cent and the sector’s revenue is expected to increase significantly.
A number of high-frequency indicators such as goods and services (GST) revenues signal a record-breaking high in consumer expenditure this year. This increase in economic activity, along with robust consumer demand is poised to bolster overall growth, experts noted.
“I firmly believe that business loans to MSMEs will see a significant 20 to 25 per cent increase during the upcoming festive season. This expected surge in credit demand aligns with historical trends and signifies the endurance and flexibility of the MSME sector in India,” said HP Singh, Chairman cum Managing Director (MD), Satin Creditcare Network.
For MSMEs, there has always been a huge window of opportunity during the festive season for MSMEs to grow, grab increasing sales volumes, and achieve a larger market share. Typically, industries like auto, consumer durables, electronics and fashion see an increase in orders when consumer demand rises.
The recent RBI consumer confidence poll lends further credence to the idea that consumers are spending more freely, which in turn has led to a greater demand for credit among MSMEs. “We anticipate a 20 per cent increase in business loans extended to these small and medium-sized businesses during the festive season. This serves as a positive indicator for the sector and underscores these businesses’ crucial role in boosting the Indian economy,” added Debarshi Dutta, CEO and Co-founder, Ayekart.
Experts added that this trend reflects a broader economic transformation across India. The fact that over 50 per cent of the loan demand originates from tier-three cities and beyond underscores inclusive growth across diverse regions. Singh added, “This speaks to the increasing economic activity, urbanization, and rising income levels in areas that were previously considered non-metro.”
Hardika Shah, Founder and CEO, Kinara Capital said that at Kinara Capital, in comparison to last year, the loan enquiries in recent months have shot up by 150 per cent. Similarly, the disbursement is also at a higher rate, there is an 11 per cent month-on-month rise in disbursement.
Notably, the rise has been most significant for short-term loans. Component manufacturers catering to consumer durables as well as automobile industries and textiles are the leading sub-sectors driving the demand for business loans. Stock purchase, procurement of raw materials, business premises renovation etc are the reasons that they need credit for.
“As consumer spending is projected to rise further in the upcoming months, the demand and disbursement is also expected to shoot up. We are anticipating a 20 per cent YoY rise in disbursement this festive season,” added Kinara Capital’s Shah.
Managing Finances
Given their significant participation in these celebrations, MSMEs are exploring online platforms for scaling their businesses in addition to their physical market presence. However, managing finances for working capital and inventory requirements during festive seasons becomes complex due to the lack of quick access to formal credit channels.
“Traditional lending methods rely heavily on expert judgment for credit decisioning which can be time-consuming and insufficient to meet the urgent needs of MSMEs. To bridge the credit gap that exists in the MSME sector, there is a need to complement traditional lending methods with digitally available and dependable data sources. GST return filings are authentic, reliable, and provide information that is dynamic in nature,” said Prashant Muddu, MD and CEO, Jocata.
In India, MSMEs often face debt issues and delayed payments which ultimately hinder their growth. About 45 per cent of businesses need help accessing working capital during this period. According to industry insiders, during the festive season over 60 to 70 per cent of SMEs report challenges in securing adequate working capital to meet increased demand during the festive season and payment delays from customers can go beyond 45 to 60 days, hindering their capacity to invest in growth. Studies also revealed that about 73 per cent of SMEs struggle with optimising their cash flow during peak sales seasons.
“For MSMEs, it’s often challenging to keep up with the spike in consumer demand due to limited market access and a lack of financial support. Facilitating easy access to credit through technology-driven supply chain solutions will be essential at this juncture,” asserted Nirav Choksi, CEO and Co-founder, CredAble.
At CredAble, Choksi told BW Businessworld that while the demand for credit from MSMEs has remained strong throughout the year, “We anticipate a 50 per cent increase in MSME loan applications during the festive season, coupled with a two-fold growth in loan disbursements on our platform,” he added.
Meanwhile, according to a report by Shiprocket, the ecommerce sector presents a substantial USD 13 billion opportunity for the MSME segment. As a result, these platforms are extending assistance to MSMEs in their festive planning efforts, leveraging in-depth data analytics to customize their offerings to meet the specific needs of MSME sellers.
