Close to 50% of MSMEs in Pune needed financial support, as Maharashtra was one of the worst affected states during the first wave, revealing the MSME Insight Report 2022 –Rising In The Face of Adversity – released today by NeoGrowth, the MSME-focused FinTech lender leveraging the digital payments ecosystem.
The Report is based on a comprehensive assessment of a base of over 40,000 MSMEs from over 25 cities across 88 unique industries, analyzed by the company from March 2020 to March 2022. The survey, covering MSMEs in both discretionary and non-discretionary demand-oriented businesses, 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.
The company registered a 30% growth in its customer base from 16,087 to 20,868 in the same period.
Arun Nayyar, Whole Time Director & Chief Executive Officer, NeoGrowth said, “Many MSMEs were struggling in 2020-21 due to the burden of loan repayments because of the cessation of demand from consumers. Early on in the pandemic, we identified that MSMEs needed extra support since this was a genuine business disruption. We realized that MSME customers were inherently honest and had the willingness to pay back. NeoGrowth handheld them throughout their journey, right from proactively understanding their sentiments at the beginning of the pandemic to supporting them so they are able to bounce back.”
“The MSME ecosystem in India is a ‘Survival to Revival’ saga. 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. We, at NeoGrowth, firmly believe that the Indian MSME sector is on a successful resurgence trajectory, which opens up the pathway for strong growth of the Indian economy in the years to come,” he further added.
Stage 1: Disruption and MSME Mindset
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.
The impact on MSME business operations during the early lockdown was due to restrictions on movement, inability to manage cash flows due to reduced consumer demand, and uncertainty around business recovery post resumptions.
With this feedback, NeoGrowth launched an industry-first initiative, Sanjivni, to aid the bounce-back of MSMEs with empathy and empowerment. The program proactively extended financial and non-financial assistance through unique and customized solutions for all types of customers irrespective of the severity of the impact.
Stage 2: Business Impact & Support Structure
In reality, 46% MSMEs across India needed financial support to mitigate the impact, with higher demand from non-metros than metros. Financial support availed by non-discretionary 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.
Despite being the first ones to be impacted by the pandemic, MSMEs showed grit. 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.
Stage 3: Revival & Back to Growth
In the second wave, 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.
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.
Interestingly, 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.
In March 2022, it was observed that MSME credit demand from non-metro cities was back to pre-COVID 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.
New opportunities have been unearthed for the MSME ecosystem in these last two years. 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 customisation will be the way forward for FinTech lenders such as NeoGrowth to deliver enhanced value to small businesses, throughout their loan journey.