Millions of digitised businesses may face difficulties in realising economic potential and the biggest reason for this will be the credit deficit of $220 billion, observes the India Digital SME Credit Report 2023, issued by GetVantage and Redseer Strategy Consultants.
Redseer analysts estimate that out of the current $220 billion requirement (as of FY22), $165 billion is serviceable when adjusted for sick and commercially unviable businesses.
The survey reveals that the infusion of $ 53 billion in FY22 into the market through various channels will be inefficient in filling the gap, which stands at $112 billion. The number of digital SMEs will double in the next five years, while demand for credit is expected to cross $ 570 billion.
The 2023 edition of the report also indicates that the deficit is expected to hinder the growth of new economies and emerging businesses from innovating new products, creating jobs, scaling operations, and building efficiencies.
According to Kanishka Mohan, partner at Redseer, “Small businesses account for 90 per cent of credit demand but continue to struggle to raise capital, owing to poor business metrics, limited assets, and uncertain growth projections. If the current economic and regulatory climate continues, this gap is likely to widen significantly over the next five years.”
Presently, 64 million MSMEs in the country are contributing about 30 per cent of the nation’s GDP. Out of this, around 12 per cent or 7.7 million MSMEs are digitised businesses that have been able to shift part of their operations online.
The public and private banks are only able to service 30 per cent of the total demands to SMEs, opening opportunities for NBFCs and third-party lenders. As a result, 40 per cent of the overall capital investment into the SME market went to digitized SMEs (12 per cent of total MSMEs), according to Redseer.
Alternate finance has emerged as a lifeline for SMEs where innovative lending models such as revenue-based financing, recurring-revenue advances, trade receivable financing, etc., are providing access, flexibility and transparency. These are making these quasi-equity solutions ideally suited to help SMEs scale their businesses.
