The report observed that the traditional lending models often fail to cater to the dynamic nature of SMEs, leaving them with limited access to credit and high-interest rates
Small and medium-sized enterprises (SMEs) face numerous challenges, notably in managing their working capital effectively. These include delayed payments, difficulty in obtaining financing, and inefficient inventory management, a latest report noted.
The report titled ‘Building Sustenance for SMEs: Navigating Working Capital’, highlights the core challenges faced by SMEs in securing working capital and offers innovative solutions to navigate these obstacles effectively.
It observed that the traditional lending models often fail to cater to the dynamic nature of SMEs, leaving them with limited access to credit and high-interest rates. A common parameter to assess working capital capabilities is the Cash Conversion Cycle (CCC), which for SMEs in India has grown to over 72 days.
Reacting to the report, Nirav Choksi, CEO and co-founder at CredAble, said. "Our report sheds light on the challenges faced by SMEs in managing their working capital and presents actionable solutions to foster growth and sustainability."
The report highlights two key financing strategies tailored to SMEs: SME-to-Corporate and SME-to-SME transactions. In SME-to-Corporate transactions, CredAble leverages existing relationships with large corporates to extend financing to SME vendors and distributors through Supply Chain Financing mechanisms. On the other hand, SME-to-SME transactions focus on leveraging data-driven insights to assess previously unbanked or underleveraged SMEs, thereby unlocking access to innovative financing structures.
According to latest available data, India has about 633.9 lakh MSMEs of which over 99 per cent of total MSMEs qualify as micro-enterprises that make up to 630.5 lakh business entities in the country.
Out of all MSMEs, only 0.5 per cent qualify as small businesses, totaling 3.3 lakh, and merely 0.01 per cent are classified as medium businesses, amounting to 0.05 lakh. Rural areas host the majority with 324.9 lakh businesses, while urban areas have 309 lakh businesses.
According to the Ministry of Statistics and Programme Implementation, the contribution of MSME Gross Value Added (GVA) to India's Gross Domestic Product (GDP) was 30.5 per cent, 27.2 per cent, and 29.2 per cent for the years 2019-20, 2020-21, and 2021-22 respectively. In terms of manufacturing output, MSMEs accounted for 36.6 per cent, 36.9 per cent, and 36.2 per cent of all India's manufacturing output for the same respective years.