Ascribed to the COVID-19 crisis, Javed Haidar Shaikh, a 39-year-old lost his previous job and started to work as a street food vendor with an initial investment of around Rs 60,000. Currently, as a new entrepreneur, he is able to earn a profit of Rs 2000 daily. He aspires to expand his business and decided to apply for a loan to arrange the capital required for the same. However, he was rejected twice by the banks due to lack of collateral and no guaranteed returns from his business. This story is not just of one Javed, but resonates and represents several millions of nano/micro business owners who aspire to expand their business but cannot do so. On account of their size and lack of recognition, these units are disregarded from the policy perspective. The official definition of micro-enterprises categorizes micro units based on an investment of less than or equal to Rs One crore and turnover of less than or equal to Rs 5 crore.However, units such as these are micro and even within micro, more precisely a ‘nano enterprise’. They aspire to grow but are unable to, due to various reasons, amongst which the most pressing are absence of financial inclusion, unawareness and adequate training. If we aid in their expansion process the dual fold outcome would be an increase in productivity , stimulating economies of scale, thereby, generating more employment and income.
According to the recent figures on the ‘Udyam’ portal, more than 2 crore micro units are Udyam Registered. Their number is huge compared to their medium and small counterparts. As per the latest economic survey, in 2022, only 9,300 micro units were able to transform into small enterprises. Although RBI’s priority sector lending norm stipulates lending 7.5% of bank loans to the MSME sector, there seems to be a reluctance within banks towards lending nano units. Of the total 10 million nano entrepreneurs, it is estimated that a mere 5% have access to credit through formal sources and 80 percent of them have grown their business either from savings/bootstrapping or from borrowing from family and friends. Several players within the ecosystem such as philanthropic organizations, NBFCs etc have come forward to mitigate these issues. The work done by organizations like Arth Impact, Vivriti Capital, Kinara Capital, and The Michael & Susan Dell Foundation is noteworthy. Although, a lot needs to be done in segments like insurance coverage, easy compliance for loans, and availing loans at cheaper interest rates.
Along with inadequate access to credit sources, nano/micro enterprises lack training and access to financial discipline. Usually, the owner of an enterprise is responsible for maintaining records and taking financial decisions. Decisions regarding working capital management are either based on thumb rules or prior experience. Several researchers have highlighted that nano units don’t register themselves on the Udyam portal because they are unaware of the process. In this domain, organisations such as deAsra foundation are contributing tremendously . deAsra organizes several training sessions and assists micro business units to register themselves on the Udyam portal.
MSMEs are an important segment of the Indian economy. If we help nano units primarily to be categorised and recognised, there is huge potential that we can harvest from these enterprises. Challenges faced by nano and micro entrepreneurs are different from those faced by collective MSME units. But unfortunately they are grouped with a larger cluster of small and medium units. There is a dire emerging need to formulate relevant policies for their growth and expansion.In order to do that, it all boils down to the idea of recognising this segment.
References-
1) Ministry of Micro, Small and Medium Enterprises (MSME). (n.d.). Udyam Registration https://udyamregistration.gov.in/
2) Contributor, G. (2023, June 27). Financialexpress. Nano entrepreneurs: Big ambitions, untapped potential for India’s economy | The Financial Express. https://www.financialexpress.com/industry/sme/cafe-sme/msme-fin-nano-entrepreneurs-big-ambitions-untapped-potential-for-indias-economy/3140391/
3) Michael & Susan Dell Foundation. (2023, June 19). Empowering nano entrepreneurs to transform India’s economy. Michael & Susan Dell Foundation. https://www.dell.org/insight/nano-entrepreneurs-transform-india-economy/
4) Bhattacharyya, S. S., & Jagadeesh, K. (2018). Working capital management of micro & small enterprises. Indian Journal of Industrial Relations, 54(1), 177-192.
– Dhiraj Aware
Mr. Dhiraj Aware is a research enthusiast and is currently pursuing MSC in Financial economics from GIPE.
– Ms. Medhakriti Gupta
Medhakriti is in her final year of BSc Economics, an aspiring young economist trying to decode the Indian economy.
