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Atmanirbhar MSMEs

According to the World Gold Council, Indian households have nearly 24,000 to 25,000 tonnes of gold in stock and less than 10 per cent of gold is playing out in the organised market. Using it as collateral is often preferred by many, especially when availing of credit comes with certain hurdles for certain sections of society

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The pandemic and the ongoing geopolitical crisis have presented a set of challenges to every sector across the economy. The small and medium enterprises (SMEs) and micro, small and medium enterprises (MSMEs) along with a few other sectors have been the most impacted during the pandemic. 

MSMEs in India contribute to around 30 per cent of the nation’s nominal Gross Domestic Product (GDP) with over 6 crore production units, employing about 11 crore people, and accounting for almost 40 per cent of the total exports. 

Undoubtedly, they play a vital role in fuelling the economic growth of the country. However, post the onset of the pandemic, nearly 5,900 businesses were reported to have shut down during FY 2020-21 and 2021-22. 

While the RBI recently shifted its focus from prioritising growth to tackling inflation, the government’s thrust on capital spending should continue to aid economic recovery. It would however be important to continue offering support/sops to the most impacted segments during the pandemic, which includes SMEs, MSMEs, self-employed, small businessmen and small traders. 

Initiatives like the extension of the Emergency Credit Line Guarantee Scheme (ECLGS) scheme will provide the much-needed additional credit to more than 1.3 crore MSMEs and help them mitigate the adverse impact of the pandemic. 

During the pandemic, gold Loan NBFCs played a very crucial role in supplementing the banking sector, and catering to the underbanked and underserved segment of the society. These NBFCs helped in meeting the credit requirements of the self-employed, MSMEs, and women borrowers. 

Even during earlier times, before the Covid-19 outbreak, gold loans were considered a great and hassle-free source of raising capital funds for small businesses given the high liquidity of gold, quick turnaround time and a well-established value in the market. 

Given the economic fallout, and the challenges posed by meeting the capital requirements of small businesses, gold loans have emerged as a great option for borrowers. Furthermore, because of a wider grass-root level presence, higher gold loan disbursements were observed especially in the MSME sector since the pandemic.  

According to the World Gold Council, Indian households have nearly 24,000 to 25,000 tonnes of gold in stock and less than 10 per cent of gold is playing out in the organised market. Using it as collateral is often preferred by many, especially when availing of credit comes with certain hurdles for certain sections of society. 

With the uncertainty of the pandemic, the hesitance of various financial institutions to extend unsecured credit had increased. With gold financiers in the market offering credit up to 75 per cent of the gold value, paired with a rising in the price of gold, and numerous digital innovations offered at one’s disposal, gold loans became a popular choice for MSMEs.

As there is a growing preference for NBFCs in the MSME sector, NBFCs are constantly focusing on improving their services through diversified offerings, technology adoption, strategic partnership, robust operational model, and regulatory compliance for availing easy credit. 

India is envisioned to emerge as one of the leading economies in the world over the next decade with the observed gradual recovery rate and the MSME segment is expected to play an important role in this journey. 

The development of this segment is crucial to meeting the national need for monetary inclusion and achieving a large level of employment across the country's urban, semi-urban, and rural areas. In addition, the sector has the potential to encourage and support a new generation of entrepreneurs who have the potential to launch globally competitive businesses from India. 

With domestic and foreign companies investing in the 'Make in India' initiative and making a significant indigenisation impact, MSME can be the backbone for existing and future high-growth businesses. With the gradual economic recovery, some help from financial institutions, and the government, MSMEs in India can pave a brighter future for our nation.

Now when we talk about the present-day scenario, the fact that India is the second-largest gold consumer could help India in getting a step closer to its dream of becoming ‘Atmanirbhar’ with the rising contribution of MSME to the economy’s growth.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


George Alexander Muthoot

The author is a Managing Director (MD) at Muthoot Finance.

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