Benguluru-based Global Alliance for Mass Entrepreneurship (GAME) aims to build a thriving environment for mass entrepreneurship in India. In an interview with ET Online, Ravi Venkatesan, GAME’s founder, discusses the “missing middle” irregularity of the MSME sector, its implications and potential remedies. He further suggested leveraging technology to automate payment processes and provide suppliers with immediate access to working capital. Edited excerpts:
ET: India’s manufacturing sector, a key space among MSMEs, exhibits the missing middle problem: These firms are often caught in the middle, too big for policy benefits and too small for financial or mentorship support. How do we solve this?
Ravi Venkatesan: Most small manufacturing businesses are part of the extended supply chains of large companies. The health and growth of these firms depend a lot on the extent to which larger firms invest in developing the capabilities and business of the smaller firms. When it works well, it results in competitive clusters such as the Ludhiana bicycle parts ecosystem around Hero or an automotive cluster in Pune around Tata Motors, Cummins, Bajaj and so on. Therefore, the attempt to bring in more global OEMs, especially in sectors such as electronics, is so important.
Another important issue is formalisation. There is substantial evidence showing that businesses that begin informally remain informal and stunted. Such firms play an important role in the economy, but for jobs that pay a decent wage, high productivity is essential, which invariably requires the firm to be formal to access capital and become part of a larger supply chain. Here, the government’s efforts to promote formalisation through GST, Udhyam registration, and more are crucial.
Also, the success of a few pioneering firms inspires a growth mindset in other firms and a healthy ecosystem grows around them. We have witnessed this trend in multiple sectors, including IT, pharma, diamonds, two-wheelers. Thus, to generate enthusiasm for building exceptional companies, we must highlight the success stories of thriving small businesses in various schools, colleges, local communities, and industry associations.
ET: Micro firms, despite being a significant part of the MSME sector, reportedly receive less support than medium-sized firms. Which policy measures are required to change the status quo?
RV: Micro and small businesses in India need some policy measures for growth: access to affordable finance, skill development, reduced regulatory burden and improved market access. We can have better access to finance when we develop loan guarantee schemes specifically for micro and smaller MSMEs. RBI announced the launch of the Public Tech Platform for Frictionless Credit (PTPFC) pilot project to connect borrowers and lenders, making credit more accessible to individuals looking for small loans. It will enable the disbursal of non-collateral-based loans for MSMEs.
We also need to focus on promoting alternative financing models and simplifying loan application processes. In many rural and semi-urban areas, even today, we have bank sakhis and vitta sakhis that help entrepreneurs with the loan application process because it is complex.
We have collaborated with SIDBI to launch an NBFC Growth Accelerator Program (NGAP) that helps smaller NBFCs that cater to lending to MSMEs build their capability and make them eligible for institutional funding from banks or larger NBFCs.
Focusing on innovation and skill development is critical to making the MSMEs capable of competing globally. We should establish incubator and accelerator programmes, provide incentives for technology adoption and invest in vocational training programmes tailored to the sector’s needs.
Reducing regulatory burden and improving market access needs rigorous emphasis. MSMEs require support for market linkages and tapping export opportunities. We need to streamline business registration processes and consolidate licences and permits to reduce the cost burden for MSMEs. The government should also encourage procurement from MSMEs. There should be a specific percentage of government contracts set aside for MSMEs.
ET: TReDS has made a significant impact, but not all MSME firms have benefited equally. What three bottlenecks do you see here?
RV: The Trade Receivables Discounting System (TReDs) platform hasn’t lived up to its full potential in tackling delayed payments in India. MSMEs require significant support in their TReDS journey for all enterprises to benefit from it equally.
Improving awareness, education, incentives, accessibility and user experience can make a significant difference. There should be industry-specific awareness campaigns, selecting those industries and sectors with high delayed payment occurrences to highlight the benefits of TReDS. This can be accomplished by partnering with industry associations, chambers of commerce, and other institutions. Nothing succeeds like success. So, it is also important to showcase those MSMEs who have benefitted from TReDS to inspire others.
We also need to offer temporary subsidies and tax breaks as an incentive to MSMEs. Else it will be difficult to get early adopters on a large scale. Offering lower transaction fees can also work well. However, in the long run, there should be improved access to finance at competitive options for those MSMEs. Timely payments and high-volume transactions should also be rewarded to encourage platform usage. On the technology front, there should be efforts to streamline the onboarding process, develop a more user-friendly interface, and integrate with popular accounting software and mobile app development.
ET: Access to finance and delayed payments are among the major roadblocks for MSMEs. Could you spell out a structured plan for them to help solve this?
RV: Most MSMEs operate with limited financial reserves. Therefore, timely payments and fast contract approvals are crucial for their smooth business operations. Several government schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and Pradhan Mantri Mudra Yojana (PMMY) are meant to ease access to finance issues. The two programmes that GAME is involved in with NRLM (WEFEP) and SIDBI (NGAP) are also focused on addressing access-to-finance problems.
Tackling delayed payments is a complex issue that requires multi-pronged solutions.
Strengthening legal framework and enforcement with an accent on fast-tracking disputes through dedicated tribunals and courts helps bring down the litigation cost and reduce time. Improving access to finance through government-backed credit guarantee schemes reduces bank risks and promotes lending to small businesses. We also need to explore alternative lending models, such as crowdfunding or peer-to-peer lending, to create additional avenues for small businesses and suppliers to access finance independent of traditional bank loans.
Another aspect worth focussing on is promoting awareness and uptake of trade credit insurance products to mitigate risks associated with delayed payments and protect suppliers from potential losses.
Promoting e-invoicing and using digital platforms for supply chain transactions also helps in seamless data flow and automating payment triggers, real-time tracking and reporting. We have immense fintech capability, and it can be harnessed to provide suppliers with immediate access to working capital.
We need to encourage companies to adopt ethical procurement processes that ensure clear payment terms, timely settlements and an escalation matrix. Suppliers need to come together and form associations that help in collective bargaining. Timely payments to small and micro enterprises need to be promoted as part of an organisation’s CSR.
GAME has published two reports on delayed payments in 2022 and 2023, focusing on these issues. Our collaboration with the Federation of Indian Micro and Small & Medium Enterprises (FISME) also aims to take the delayed payment issue deeper to examine sectoral issues. We intend to focus on this in 2024.
ET: By 2030, GAME’s goal is to empower 10 million mass entrepreneurs. Can you give a summary of the progress and highlight impactful key programmes?
RV: Our approach is to work with alliance partners in government(s), private sector and social sector organisations to strengthen the ecosystems that support the growth of existing enterprises and increase the number of new ones. Our aim is for India to have a vibrant entrepreneurial hub in at least every district. So far, we have worked on several initiatives and policy efforts.
Our policy reforms have impacted more than 160,000 MSMEs in Punjab. We have taught 1.2 million students the entrepreneurial mindset curriculum. About $500,000 in loans is received by about 2,500 women entrepreneurs in Maharashtra, Madhya Pradesh and Rajasthan. Our unique Growtherator programme has supported 500 entrepreneurs in just one state. Recently, we onboarded the first cohort of 18 NBFCs for the NBFC Growth Accelerator Program (NGAP), and we expect this cohort to secure more funds from banks and NBFCs so that they can lend more to MSMEs. This programme is in collaboration with SIDBI. Through this journey, we have had about 70 institutional partners since inception, collaborating and supporting our implementation. We are a backbone organisation and intend to mainstream mass entrepreneurship.
