Global Alliance for Mass Entrepreneurship (GAME) and Small Industries Development Bank of India (SIDBI) have come together to address the funding woes faced by Micro, Small, and Medium Enterprises (MSMEs) in India. Recognizing the crucial role of Non-Banking Financial Companies (NBFCs) in providing financial support to MSMEs, the organizations have jointly launched the NBFC Growth Accelerator Program (NGAP).
The Significance of NGAP for MSMEs and NBFCs
The NBFC Growth Accelerator Program aims to bridge the funding gap by empowering smaller NBFCs that have a significant exposure to MSMEs. Ravi Venkatesan, the founder of GAME, emphasized the importance of this program, stating that lack of capital and limited access to finance are major hindrances to the growth of MSMEs. Paradoxically, smaller NBFCs, which play a vital role in financing MSMEs, face challenges in accessing credit themselves, as larger NBFCs secure a majority of the available bank loans.
NGAP will focus on capacity building for at least 100 smaller NBFCs, with assets under management ranging from Rs 75 crore to Rs 250 crore, that primarily cater to micro and small businesses in tier two and tier three cities. The program aims to assist these NBFCs in managing compliances, raising funds from larger NBFCs, and improving technology platforms for unsecured lending to MSMEs. By streamlining processes and reducing the cost of customer acquisition, the program aims to facilitate increased credit flow to MSMEs.
The execution of the NBFC Growth Accelerator Program will be spearheaded by GAME, which will conduct a pilot with 20 NBFCs to test and refine the program's strategies. Upon successful implementation, the program will be expanded to other financial services players. SIDBI, as a key partner, will play an anchoring role in empowering these NBFCs and supporting their capacity-building efforts.
Ramesh Dharmaji, former Chief General Manager of SIDBI, highlighted the need for an accelerator program to assist compassionate NBFCs that understand the unique challenges faced by MSMEs. While banks often follow rigid lending formulas that exclude MSMEs without formal accounting practices, focused NBFCs can provide the necessary support. However, these NBFCs face high borrowing costs, which ultimately affect the MSMEs they serve. The collaboration between GAME and SIDBI aims to address these concerns and help NBFCs enhance their capacity and capabilities.
The NGAP initiative is expected to bring positive changes to the MSME sector. By facilitating easier access to funds for smaller NBFCs and providing them with the necessary tools and support, the program aims to empower MSMEs and promote their growth. Here are some key aspects of NGAP's impact on MSMEs and the overall ecosystem:
Enhanced Funding Opportunities: Through NGAP, smaller NBFCs will receive guidance and assistance in raising funds from larger NBFCs. This increased access to capital will enable them to provide financial support to a larger number of MSMEs. By addressing the funding constraints, NGAP aims to stimulate entrepreneurship and drive the growth of MSMEs in India.
Strengthened Capacity Building: NGAP focuses on capacity building for smaller NBFCs, providing them with the necessary skills and knowledge to navigate compliances and effectively manage their operations. By enhancing their capabilities, these NBFCs can better understand the unique needs of MSMEs and tailor their offerings accordingly, thus fostering a conducive ecosystem for MSME growth.
Technology Support for Unsecured Lending: The program recognizes the importance of leveraging technology for unsecured lending to MSMEs. By providing technology support, NGAP aims to help NBFCs develop robust platforms that streamline the lending process, reduce costs, and improve efficiency. This, in turn, benefits MSMEs by making financing more accessible and efficient.
Cost Reduction and Customer Acquisition: NGAP emphasizes the importance of reducing the cost of customer acquisition for NBFCs. By implementing technological advancements and process optimizations, NBFCs can streamline their operations, resulting in cost savings that can be passed on to MSMEs. This not only makes financing more affordable but also facilitates faster and smoother customer onboarding for MSMEs.
Expansion of MSME Reach: By supporting smaller NBFCs that primarily cater to micro and small businesses in tier two and tier three cities, NGAP aims to extend financial services to underserved regions. This expansion of MSME reach contributes to inclusive growth and economic development across various geographies, empowering local entrepreneurs and creating employment opportunities.
Collaborative Ecosystem: The partnership between GAME and SIDBI fosters a collaborative ecosystem where industry players, financial institutions, and MSMEs work together to overcome challenges. The collective efforts of these stakeholders are expected to create a conducive environment for MSMEs to thrive, facilitating their integration into the mainstream economy.
GAME has trained 3.26 lakh entrepreneurs through skill development programmes since its inception in 2018.
SIDBI has financed over 10 lakh MSMEs since its inception in 1990.
The Indian MSME sector employs over 120 million people and contributes over 25% of the country's GDP.
MSMEs face a number of challenges, including access to credit, high interest rates, and lack of infrastructure.
The NBFC Growth Accelerator Program is designed to help address some of these challenges and improve access to credit for MSMEs.
Through the implementation of NGAP, GAME and SIDBI aim to bring about transformative changes in the MSME sector. By addressing funding woes, providing capacity building support, and leveraging technology, the program seeks to empower MSMEs, promote their sustainable growth, and contribute to India's economic development.