Micro, Small and Medium Enterprises (MSMEs) are amongst the worst hit because of COVID-19 pandemic lockdown. It has forced most of the small businesses to shut shop and many are staring at existential problems. Only immediate government support in the form of working capital infusion and cash flow financing can help survive the small businesses, an online poll conducted by SKOCH Group as part of the ‘National Consultation with MSMEs’ has revealed. 

The most critical challenge facing the MSMEs currently is the lack of working capital. They cannot pay salaries, rents and meet up with other obligations. More than half of the respondents (52.17 per cent) listed working capital as their biggest immediate problem. For 34.78 per cent respondents lockdown is the immediate problem, while 13.04 per cent listed slow business as their biggest concern. 

There is no clarity on how long will it take for the businesses to get back on track to normal turnover and profit. Majority of them are bracing for 6-12 months of hardships. 39.13 per cent feel that it would take six months; 19.57 per cent feel that it would take nine months; while 21.74 per cent feel that it would take 12 months to get back to normalcy. Only 11 per cent are optimistic of getting back to normal in three months while 4.35 per cent each feel that it would take 18 months and 24 months, respectively. 

Nearly all the respondents (97 per cent) agreed that there is a need to increase the cash credit limit of the MSMEs. 31 per cent of the MSMEs want an increase of 4 times in their cash credit limits, while an equal number want an increase of 3 times. Of the total respondents, 28 per cent want an increase of two times in their working capital limit, while 8 per cent want 1.5 times increase. Only 3 per cent of the respondents opted for no increase in cash credit limit. 

Saurav Sinha, Managing Director of Kolkata-based IT firm Brainium Info Tech, said the most pressing need of capital for the MSMEs today is for paying salaries. “As a software company, our major costs are in the salary. Rest of the things we can manage. We are looking at around three times increase in existing credit limit,” he said. In simple words, if a company today has a cash credit limit of Rs 1 crore, it should be increased to Rs 3 crore. 

Vaibhav Anand, Co-Founder of New Delhi-based firm Credochain, said the problems for the MSMEs are expected to persist for two-three quarters and the government’s support in the form of working capital during the period would be crucially important. “Rebuilding of MSMEs is equal to rebuilding India. And it requires capital to rebuild India. Of course, the government is required to figure out the sector wise need. Some sectors might need more when compared to others. But everybody needs capital,” said Anand.

The nationwide survey was a part of the ‘SKOCH Webinar – COVID, Cash Flow and Credit’ conducted recently. Another pressing demand of MSMEs that has emerged from the survey is the need to push for cash flow financing. 80 per cent of the respondents want the cash flow financing system to be implemented immediately, while another 18 per cent want it to be implemented over the next 6 months. Only a marginal 2 per cent don’t feel the need to implement a cash flow financing system. 

An ecosystem created through Aadhaar and Jan Dhan accounts has enabled the government to extend immediate support to poor in this time of crisis. There is no such system that exists for the MSMEs. Even if, the government wants to provide the support to the MSMEs, there is no mechanism to do it efficiently and transparently. 

The biggest problem is identification. There is no transparent framework in place to identify MSMEs. Sameer Kochhar, Chairman, SKOCH Group, emphasised on the need for defining the MSMEs based on turnover instead of the current investment based model. “The current system is so exploitative that nobody wants to register. Instead of it being of any help, this mostly turns into a headache,” added Kochhar referring to the categorisation of MSMEs based on investments as per the Section 7 of the Micro, Small and Medium Enterprises Development Act, 2006. 

The survey reveals that the loans against invoices and receivables would be of immense help for the MSMEs. Of the total respondents, 52.17 per cent said immediate loans against invoices and receivables would be of immense help, while 36.96 per cent found merit in it. Remaining 10.87 per cent said it would be of no help. 

There is much talk about government stimulus or grants to support small businesses. What is the immediate need for a grant? There are two main payments that the small businesses are struggling with. 56.52 per cent said the grant would be most useful for vendor payments, while 32.61 per cent opted for salaries. 4.35 per cent opted for utility bills while 6.52 per cent said they would use it for other payments. 

Samir Kampani, Managing Director of Pune-based AES Industrial, emphasised on the need for easier norms and relaxation in ways to do business in India. “The government needs to modulate more easy processes for MSMEs. The compliances should be relaxed,” Kampani said. On credit support, he said, “Money is a one good option but people should be able to pay it back. In the current situation this will be very hard.” 

Rohan Kochhar, Director, Public Policy, SKOCH Group, highlighted how the governments around the world are coming forward to help small businesses in this time of crisis. “The world today is going through an unprecedented crisis and right now, no one knows how long will this crisis last? Many countries are preparing for the economic fallout of this unprecedented global public health emergency.” 

He pointed out how the US Senate has passed a $2 trillion COVID rescue package wherein midsize companies have been given an option to borrow at less than 2 per cent interest annually and don’t have to repay principal or interest for next six months. 

Australian government has introduced many measures including cash flow payment for employers, SME guarantee scheme and additional payments for employers to retain staff and continue with their business operations.