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Tag: MSME Sector

  • Empowering India’s MSMEs: Navigating the 45-Day Payment Rule

    In India, there’s a new rule called the 45-day MSME payment rule. It says big companies have to pay small businesses (MSMEs) on time. This is important for small businesses in India because it helps them stay financially healthy and run their businesses smoothly.

    The 45-day MSME payment rule mandates that large companies must clear payments to Micro and Small Enterprises (MSEs) within 45 days of receiving goods or services, or within 15 days if no written agreement exists.

    This regulation aims to mitigate the challenges faced by the small-scale sector due to delayed payments, which often lead to cash flow constraints and operational disruptions. By enforcing stricter payment timelines, the rule seeks to foster a more equitable business environment, empowering MSMEs to thrive and contribute to India’s economic growth.

    In this article, let’s understand this rule and see what it means for businesses in India.

    Consequences of Non-Compliance
    Impact on Micro and Small Enterprises(MSEs)
    Benefits for MSMEs
    Challenges for Big Businesses
    Proactive Measures Required
    Exemptions and Exceptions
    Preparing for Compliance

    Consequences of Non-Compliance

    India’s recent enforcement of the 45-day MSME payment rule under Section 43B(h) of the Income Tax Act signifies a pivotal moment for the Micro, Small, and Medium Enterprises (MSME) sector.

    Non-compliance with the payment deadlines outlined in the 45-day MSME payment rule carries significant repercussions for businesses. Failure to comply with the timeline means corporations will be required to pay tax on the amount due.

    Failure to adhere to the specified timelines results in the loss of tax deductions for the delayed payment amount and taxation of the outstanding sum as income. This not only increases the tax liabilities of non-compliant businesses but also undermines the financial stability of MSMEs, reinforcing the importance of timely payments in sustaining healthy business relationships.

    Impact on Micro and Small Enterprises(MSEs)

    Businesses operate through relationships with their suppliers and customers that get them the credit window. Most of the business to business (B2B) businesses manage their cash through rotation. They desire a maximum credit window with their supplier and a minimum credit period with their customers. While the ideal is a Cash & Carry deal, the businesses fall into the credit trap, and from a 7-15-30 days window of credit period, they end up in 60 days, or 90-day bucket and beyond. This hampers their purchase and sales cycle, profit margins and eventually the bottom line. The impact is high in highly competitive businesses and relatively less in monopolistic businesses, said Preeti Ubale, Co-Founder and Head Operations at SMBXL.

    Hyderabad-based SMBXL (Small and Medium Business Excellence) is a software-as-a-service (SaaS) startup that provides technology and digital support to MSMEs.

    The technology firm allows MSMEs to augment their business models and expand to newer markets and geographies and offers a range of customized business services to its customers through its technology platform – MarketCentral.

    This rule has a direct impact on the cash flow of MSEs. Timely payments ensure that MSEs receive the funds they need to sustain their operations, pay their employees, and invest in their growth. By enforcing timely payments, governments aim to address the cash flow challenges faced by the SME sector and ensure their financial stability.

    With this rule, the government is trying to ensure better cash flow for MSMEs who perennially struggle with delayed payments from larger customers which makes their cash flow positions difficult even as they struggle to win orders, execute projects, and manage their business, often with very thin profit margins. This is also intended to induce larger companies to demonstrate better fiscal and cash flow management responsibility. While the intent of the rule is beneficial to MSMEs and the broader ecosystem, its implementation may face challenges, said Srivatsan Sridhar, Founder and CEO, of Skydo, a cross-border payments platform. 

    Bangalore-based Skydo is a fintech platform to streamline cross-border online transactions for small businesses.

    Moreover, the 45-day payment rule enhances the credibility and trustworthiness of MSEs. Establishing a standard payment timeline, reduces the risk of non-payment or delayed payment, providing MSEs with greater confidence in conducting business transactions.

    This increased trust can lead to stronger relationships with suppliers, customers, and other stakeholders, ultimately benefiting the growth and sustainability of MSMEs.

    Micro, small, and medium enterprises (MSMEs) are often recognized as the backbone of the Indian economy. Contributing to nearly 27 percent of the country’s GDP, 42.67 percent of total exports, and 36 percent of India’s manufacturing output, MSMEs serve as drivers for employment creation, export growth, and the development of the credit market within the nation.

    Furthermore, MSMEs play a crucial role in alleviating regional disparities by serving as significant employers in rural and less developed areas of the country.

    PAYMENTS TO MSMEs WITHIN 45 DAYS | SECTION 43B(h) | FINANCE ACT | INCOME TAX LAW | 2024 |

    Benefits for MSMEs

    The implementation of the 45-day MSME payment rule heralds a new era of opportunity for small businesses in India. With access to timely funds, MSMEs can invest in growth initiatives, expand their market presence, and create employment opportunities. Ultimately, the empowerment of MSMEs fuels economic growth and fosters a more inclusive business ecosystem in India.

    “In sectors with long supply chains and lead times, especially those in manufacturing and exporting sectors, adhering to a 45-day payment window may significantly impact companies’ working capital. Presently, domestic payment terms typically are 90 days, while international cycles can stretch to over 150 days. The logistics involved in international shipping often result in extended transit times, with goods taking weeks to reach their destination. Additionally, overseas customers often force suppliers to store inventory nearby, inwarding parts into their company only on demand – the payment of this further delay due date recognition,” Sridhar said.

    The Ministry of Micro, Small, and Medium Enterprises (MSME) has introduced the MSME Samadhaan Portal, aiming to simplify the process of filing applications under the Micro and Small Enterprises Facilitation Council (MSEFC).

    This initiative enables MSE suppliers to submit online applications against buyers of goods/services directly to their respective State/UT MSEFC. The submissions are accessible to the MSEFC Council for necessary actions and are also visible to relevant Central Ministries, Departments, Central Public Sector Enterprises (CPSEs), State Governments, and other stakeholders for proactive interventions.

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    Challenges for Big Businesses

    “While there is some apprehension among MSEs that larger corporations could end up cold-shouldering them due to the new 45-day rule, the overall impact of the 45-day payment rule could result in a lot of positives for the MSEs. A larger corporation that pays on time can become a reliable and trustworthy partner to MSEs, leading to long-term collaborations and more disciplined transactions. Timely payments will also strengthen the MSME’s financial health, which means that they will be in a better space to negotiate with larger corporations. Better negotiations lead to faster dispute settlements, less legal hassles, and encourage more streamlined business practices,” said Ubale, co-founder of SMBXL.

    On its platform, SMBXL has over 64,000 customers, from over 900 towns and cities. These customers include traders, manufacturers, and distributors, across a wide spectrum of industries, including machine tools, retail stores, FMCG, textiles, electronics, leather goods, and catering companies.

    Logistical complexities in tracking invoices, contractual disputes over payment terms, and the need for robust internal systems pose significant hurdles to timely payment compliance.

    Logistical Complexities: Tracking invoices and ensuring timely payments can be challenging, especially for large corporations dealing with a high volume of transactions. Manual processes may lead to errors, delays, and difficulties in keeping track of payment deadlines.

    Contractual Disputes: Disputes over payment terms and conditions can arise between MSMEs and large corporations, further complicating the payment process. These disputes may result from ambiguities in contracts, differing interpretations of terms, or disagreements over delivered goods/services.

    Robust Internal Systems: Large corporations often have complex internal systems and processes that may not be optimized for prompt payment compliance. Implementing changes to these systems to accommodate the 45-day MSME payment rule may require significant investment in technology, training, and restructuring.

    “The introduction of a 45-day payment rule may end up creating a few unintended challenges for MSMEs – large companies renegotiating contracts with their suppliers, forcing MSMEs to accept lower margins or absorb additional costs of complying with the rule, replacing existing suppliers with new ones, re-defining the payment event in myriad ways to circumvent the 45-day rule, and so on. There are also multiple question marks on the enforceability of this rule. The Trade receivables electronics discounting system (TReDS) launched by RBI recently might come in as a savior for MSMEs – this enables them to get competitive discounting rates to receive their invoice payments quickly, and this new 45-day payment rule might help this scheme see widespread adoption,” Sridhar commented.

    Proactive Measures Required

    Businesses need to take proactive measures to address these challenges effectively:

    • Process Optimization: Streamlining invoicing, payment approval, and reconciliation processes can improve efficiency and reduce the likelihood of delays.
    • Technology Adoption: Implementing automated invoicing and payment systems can help minimize errors, enhance transparency, and expedite payment processing.
    • Enhanced Communication Channels: Establishing clear communication channels between MSMEs and large corporations is essential for resolving disputes, clarifying payment terms, and ensuring mutual understanding.
    • Impact on Cash Flow: Delays in receiving payments from large corporations can have a significant impact on the cash flow of MSEs. According to a study by the Small Industries Development Bank of India (SIDBI), delayed payments are a major concern for MSMEs, affecting their ability to meet operational expenses and invest in growth opportunities.
    • Compliance Costs: Ensuring compliance with the 45-day MSME payment rule may incur additional costs for large corporations, including investments in technology, staff training, and legal consultations to review and update contracts.
    • Legal Ramifications: Failure to comply with the 45-day MSME payment rule can result in legal consequences, including penalties and reputational damage for non-compliant businesses. Large corporations need to prioritize compliance to avoid these risks.

    Exemptions and Exceptions

    While the 45-day MSME payment rule applies broadly to transactions between MSEs and large corporations, certain exemptions and exceptions exist. Traders, suppliers not registered under the Udyam portal, and medium-sized enterprises are exempt from the rule’s purview. Additionally, opening balances as of April 1, 2023, are excluded from its scope, providing businesses with clarity on its applicability and implementation.

    Classification Micro Small Medium
    Manufacturing Enterprises and Enterprises rendering services Investment in plant and machinery or equipment: Not
    more than Rs. 1 crore and Annual Turnover: not more than Rs. 5 crore    		 Investment in plant and machinery or equipment: Not
    more than Rs. 10 crore and Annual Turnover: not more than Rs. 50 crore    		 Investment in plant and machinery or equipment: Not
    more than Rs. 50 crore and Annual Turnover not more than Rs. 250 crore

    This table provides the classification of Micro, Small, and Medium Enterprises (MSMEs) applicable from 1st July 2020, based on composite criteria of investment in plant and machinery/equipment and annual turnover.

    Preparing for Compliance

    To ensure compliance with the 45-day MSME payment rule, businesses must proactively review outstanding dues to MSEs and prioritize timely payments within the specified deadlines.

    • Review and Prioritize Payments: Regularly review outstanding dues to MSMEs and prioritize timely payments within the 45-day window.
    • Update Accounting Systems: Implement system updates to track invoices and payment deadlines efficiently.
    • Revise Contracts: Ensure contracts align with the 45-day payment terms, clarifying invoicing and penalty provisions if necessary.
    • Emphasize Prompt Payments: Cultivate a culture of prompt payments within the organization through awareness, training, and accountability measures.
    • Utilize Technology Solutions: Leverage digital payment platforms and automated invoice tracking systems to streamline payment processes.
    • Integrate with Supply Chain Management: Integrate payment processes with supply chain management systems to prioritize MSME payments.
    • Monitor and Report Compliance: Establish monitoring mechanisms to track compliance, address gaps, and demonstrate commitment to timely payments.

    Conclusion

    MSMEs play a crucial role in the economy by contributing to job creation, fostering innovation, and promoting sustainability. Their agility, adaptability, and ability to foster local entrepreneurship make them key drivers of economic growth and competitiveness.

    However, MSMEs face numerous challenges that hinder their growth and sustainability, including limited access to finance, markets, and skilled talent. Governments have implemented various initiatives to support MSMEs, including financial incentives, access to markets, and legal frameworks.

    By providing the necessary support, resources, and opportunities, one can create an inclusive and competitive business environment that fosters the growth and success of MSMEs, ultimately leading to sustainable economic growth for all.

    The new rule is expected to increase the confidence of MSEs to invest more in their
    businesses, said Ubale. “MSEs are also expected to focus more on innovation and productivity. Delayed payments cause financial burdens. MSEs may spend time and effort on developing new products, services, or processes. This is a boon to competition in the market. Consistent cash flows lead to stability that promotes further expansion, whether in new markets, via increasing production, or diversifying their product offerings. Improved creditworthiness also increases credit access for MSEs, and supplies them with working capital.”

    The 45-day MSME payment rule represents a transformative step towards bolstering the financial resilience and operational efficiency of small businesses. By navigating the challenges and leveraging the opportunities presented by this regulation, businesses can contribute to a more inclusive and sustainable business ecosystem, driving economic prosperity across India.

    FAQs

    What is the 45-day MSME payment rule?

    The 45-day MSME payment rule is a regulation in India that mandates large companies to clear payments to Micro and Small Enterprises within 45 days of receiving goods or services, or within 15 days if there is no written agreement.

    Why was the 45-day MSME payment rule implemented?

    The rule was implemented to address the challenges faced by MSMEs due to delayed payments from large corporations. Timely payments help MSMEs maintain financial stability and operational efficiency, contributing to India’s economic growth.

    What are the consequences of non-compliance with the 45-day MSME payment rule?

    Non-compliance with the payment deadlines outlined in the rule can result in tax implications for businesses. Corporations failing to adhere to the timelines may be required to pay tax on the outstanding amount, leading to increased tax liabilities and potential financial instability for MSMEs.

  • U GRO Capital’s Amit Mande Reveals Vision and Innovation in MSME Lending

    StartupTalky presents Recap’23, a series of in-depth interviews where we engage with founders and industry leaders to explore their growth in 2023 and their predictions for the future.

    The Non-Banking Financial Company (NBFC) industry is a crucial financial sector component, encompassing entities that provide various financial services without holding a banking license. NBFCs play a vital role in meeting the diverse credit needs of individuals and businesses, contributing to financial inclusion. They engage in lending, investment, and asset financing activities, often focusing on niche markets or specialized services.

    In 2022, India’s NBFC sector reported a robust net profit of 290 billion INR. The credit-to-GDP ratio reached 13.7% in FY 2021, showcasing its growing economic importance. By August 2023, NBFCs exhibited significant YoY growth, expanding by 25.8%. India’s MSME sector, growing at 11.5% annually, contributes 30% to the GDP, surpassing the overall economic growth of 8%.

    In a recent Recap’23 interview, we at StartupTalky had the privilege of connecting with Amit Mande, CRO of U GRO Capital. We analyzed the operational intricacies of U GRO Capital in the NBFC industry, exploring its strategies and gaining insights into its unique approach and strategic positioning.

    StartupTalky: What was the vision with which U GRO Capital was started? How has the company been able to build on its vision?

    Amit Mande: U GRO Capital is built on a vision of a dynamic India driven by thriving MSMEs, and we’re committed to being their trusted partner on their journey to success. By revolutionizing the MSME lending ecosystem, we are trying to solve the unsolved and participating in servicing the US $600 billion credit gap of MSMEs in India. Our aim is to acquire 1 million customers and capture a 1% market share of the larger MSME lending market over the next three years.

    We are revolutionizing MSME lending and are trying to solve historical credit access issues rooted in extensive documentation and cumbersome processes. Our vision is to eliminate hindrances for underserved MSMEs with innovative strategies to eliminate paperwork and streamline applications, offering a seamless experience through proprietary technology, exemplified by platforms like GRO X, providing on-tap financing solutions. This commitment to technology extends beyond convenience; it is about empowering MSMEs with swift credit access based on real business performance. Departing from traditional reliance on collateral and extensive documentation, U GRO Capital utilizes advanced data analytics, notably the proprietary GRO Score model, evaluating customers based on banking, bureau, and GST behaviors.

    Our aim is to service every credit need of every MSME. Given our sectoral focus and understanding of eight sectors and 180+ sub-sectors, we are able to understand the business of all MSMEs under these sectors and, therefore, address their individual credit needs. Our presence is in over 100 cities, with a large focus on the states of Rajasthan, Tamil Nadu, Gujarat, Karnataka, and Telangana. In these states, we have micro-enterprise branches where we service the credit needs of small business customers by understanding their business and cashflows and extending credit to them. We plan to expand our reach to 150 cities within the next 6-8 months.

    With our suite of products, we are catering to the credit needs of all MSMEs, especially for the underserved small businesses and to the last mile MSME. Our product offerings include secured and unsecured business loans, supply chain, and machinery finance. We offer 7-day to 15-year term loans to bullet structures in the supply chain and offer Rs. 50,000 to Rs. 5 crore loans. Our distribution model is geared towards catering to MSMEs across all geographies and ticket sizes. 

    StartupTalky: What new services have been added in the past year? What are the USPs of your service?

    Amit Mande: Since its inception, U GRO Capital has been building a suite of products in the MSME lending space to cater to different categories of business with our customized offerings. We recognized that the one-size-fits-all approach would not work for last-mile MSMEs. Our philosophy is to use data from multiple data ecosystems and deliver credit via dynamic technology channels. Through thorough analysis, we crafted loan products with flexible tenures, interest rates, and repayment schedules, catering to diverse needs. While doing this, we embraced data analytics to assess creditworthiness, moving away from traditional collateral requirements and paving the way for inclusive finance.

    The company has undergone a transformative journey over the past year, unveiling a range of business solutions to address the evolving needs of MSMEs and taking our initial strides into sustainable financing. Our commitment to innovation is evident in the launch of various product variants, expanding into new-age businesses with fresh opportunities. This has enabled U GRO Capital to evolve to cashflow-based underwriting and deliver credit at convenience and speed to last-mile customers.

    At the forefront of our offerings is our GRO X App, an on-tap financing solution that signifies a momentous leap in empowering MSMEs. This closed-loop retailer financing solution provides instant credit to the last mile, granting small merchants ‘Non-Stop Business karne ki Azaadi’ they need to operate at peak efficiency. The GRO X App, a digital solution tailored for small merchants, offers a seamless experience with customized solutions, flexible tenure, repayment options, and a pay-as-you-go model.

    As a part of our Micro-enterprise lending solutions, we recognize the vital role of micro-enterprises in the economy and have developed micro-loans with minimal documentation and simplified processes, fueling the aspirations of this often-overlooked segment.

    In our commitment to Green Finance initiatives, the solutions are designed to aid MSMEs in transitioning toward environment-friendly practices. We extend financing options for initiatives such as rooftop solar installations, green logistics, and energy-efficient solutions. We have collaborated with almost all solar OEMs and platforms that facilitate green logistics to ensure that our green financing solutions reach the last-mile MSMEs, enabling them to harness the benefits of solar energy. Actively engaging with partners involved in various sustainable practices, such as battery recyclables, solar charging stations, and overall energy-efficient solutions, reinforces our commitment to environmentally responsible financing. 

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    StartupTalky: How has MSME lending changed in recent years, and how has U GRO Capital adapted to these changes?

    Amit Mande: U GRO Capital is a dedicated MSME lender servicing all the needs of all MSMEs. UGRO has been pioneering the extension of credit to MSMEs on a data-tech platform.

    Traditionally, access to small businesses has posed a challenge. This has been primarily because of the lack of financial data and discipline that is required to credit assess customers. MSMEs in India also face issues with the number of collaterals that they can borrow against and the quality of those collaterals, and unfortunately, traditional lenders have always demanded either collateral or financials. Because of this, a large number of small businesses have to access unorganized channels for their credit needs. From these unorganized channels, credit has been unaffordable and sometimes even exploitative. 

    To address the credit demand, U GRO Capital’s philosophy is to move away from the financial-backed and collateral-backed credit assessment to cash flow-backed credit assessment. At U GRO Capital, we have walked the extra mile to understand the customer and assess his/her income and cashflows that are not reflected in banking and financials to extend credit to this segment. This is a very immersive process, and few lenders have walked this path.

    We are able to overlay the assessed cashflows to our proprietary risk model, GRO SCORE, which credit assesses customers on their banking, bureau, and GST behaviors to extend credit to the last mile. Our sectoral focus has helped us build sector and subsector-specific risk models, which help us extend credit and correctly price it.

    At U GRO Capital, we have also heavily invested in financial literacy initiatives for MSMEs, helping them manage finances effectively, build credit scores, and make informed business decisions. We have recently partnered with Laghu Udyog Bharati to launch a pan-India Awareness Campaign to Educate Small Businesses on Government Schemes and Promote Digital Credit across 100 locations. By embracing innovation, collaboration, and responsible lending, we are working towards building a brighter future for Indian entrepreneurs and the economy as a whole.

    StartupTalky: What is your brand strategy to reach a larger target audience and accelerate the next growth phase?

    Amit Mande: Our brand strategy is deeply rooted in our vision to address the significant $600 billion credit gap and foster the growth of MSMEs. This commitment is not just a part of our brand and logo; it is ingrained in every action we take. We have strategically built our brand on the foundation of customized financial solutions, a robust technological infrastructure, and the seamless delivery of credit to the last mile.

    The cornerstone of our brand’s strength lies in our ability to foster repeat customers. Our UGRO Mitra referral program stands as a testament to the exceptional experiences our existing customers have had with our services. Through this program, satisfied customers become advocates, recommending our financing solutions to their networks, thereby amplifying our reach to the last-mile MSMEs.

    Our employees, driven by a shared vision of empowering underserved businesses with the right credit solutions, serve as invaluable brand ambassadors. Their commitment goes beyond the ordinary; they willingly go the extra mile to contribute to our mission.

    Recognizing the immense contribution of MSMEs to the country’s GDP, we understand the significance of reaching a large and diverse target audience. While traditional media channels such as TV and radio campaigns have been integral to our brand positioning, they represent just one facet of our comprehensive branding strategy.

    The true ambassadors of our brand extend beyond the confines of media campaigns. Our customers, employees, and partners, including FinTechs, OEMs, and supply chain partners, play a pivotal role in shaping and validating our narrative. They believe in our story and trust in our ability to deliver on our promises. Our brand strategy revolves around building a holistic ecosystem where every stakeholder, internal and external, contributes to and validates our mission. This collaborative approach is what propels us forward, enabling us to not only reach a larger target audience but also to accelerate into the next phase of our growth journey.

    StartupTalky: With the changing financial landscape and evolving customer demands, how is U GRO Capital adapting its business model to stay competitive and meet customer expectations?

    Amit Mande: Historically, MSMEs have faced challenges with underdeveloped banking habits and incomplete financial disclosures, leading to collateral-based lending. However, the emergence of ecosystems like India Stack, GST, Account Aggregators, and other alternate data sources is transforming this scenario by providing a wealth of data. In response to this evolving financial landscape and changing customer demands, U GRO Capital is strategically adapting its business model to stay competitive and align with customer expectations.

    At U GRO Capital, our investment in data analytics and technology positions our products to leverage the digitized MSME landscape effectively. We have embraced a cashflow-based lending approach, utilizing advanced technology to assess cash flows accurately. Our commitment goes beyond traditional methods, delving into the intricacies of customers’ profiles to understand income and cashflows not adequately reflected in conventional records.

    Setting us apart from others, our immersive process integrates assessed cashflows into our proprietary risk model, GRO SCORE, which ensures swift customer assessments and approvals within an hour, setting a new standard for efficiency. Moreover, our sectoral focus has led to the development of tailored risk models for specific sectors and subsectors, allowing us to extend credit judiciously and accurately price it.

    In line with our data and technology prowess, we have introduced the GRO X Solution, Retailer Finance Solution, and online loan solutions. These innovations reflect our commitment to providing access to credit with ease of documentation and leveraging data ecosystems and robust technology.

    Our digital stack plays a crucial role in making credit access and servicing convenient for customers. The entire onboarding process, whether direct or assisted, is fully digital, relying on our data tripod of banking, bureau, and GST records. 

    We prioritize transparency in customer interactions, digitally dispatching all documentation to foster trust and ensure fair pricing. Our WhatsApp bot, Unnati, further enhances the customer experience by delivering information, answering queries, providing status updates on existing loans, facilitating applications for new loans, and more—all at the click of a button. At U GRO Capital, our differentiated and forward-thinking approach positions us as leaders in today’s dynamic financial landscape.

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    StartupTalky: What opportunities do you see for future growth of MSME lending in India?

    Amit Mande: The future of MSME lending in India holds immense potential for growth. We are currently at a nascent stage of an explosive trend, similar to the trajectory that consumer lending experienced after the evolution of lending bureaus in the mid-2000s. The advent of a robust data ecosystem, coupled with initiatives like Account Aggregator, ONDC, and others, is set to transform last-mile MSME lending.

    As one of the early adopters, U GRO Capital is strategically positioned to benefit from this evolving landscape. The integration of advanced data ecosystems allows us to tap into new opportunities and cater to the unique needs of MSMEs. We foresee a significant growth trajectory in last-mile MSME lending, and we are excited to play a pivotal role in shaping and benefiting from this trend.

    StartupTalky extends its gratitude to Mr. Amit Mande for dedicating his valuable time and generously sharing his insights with all of us.

    Explore more Recap’23 Interviews here.

  • Uttar Pradesh to Play Big Role to Make India 3rd Largest Economy by 2030

    Uttar Pradesh with an aim of becoming a $1 trillion economy is currently the fastest growing state-economy in the country. Investors in Uttar Pradesh are bridging credit gaps in the thriving MSME sector. The state will play a big role in making India the third-largest economy in the world.

    Uttar Pradesh is leading the growth of the Indian MSME sector with the highest number of MSMEs in India. The largest and most populous state boasts more than 96 lakh MSMEs, making the state one of the fastest-growing state-level economies in the country.

    President Draupadi Murmu, in her address at the inauguration of the first UP International Trade Show, stated that over 200 manufacturers from the state were displaying their products to more than 400 buyers from a total of 66 countries. The event provided a platform for local manufacturers and small businesses to showcase their products in the national and international markets.

    The President also mentioned that Uttar Pradesh, despite being a landlocked state, has experienced remarkable growth in exports, with the value increasing from around Rs 88,000 crore in 2017-18 to Rs 1,75,000 crore in 2022-23. She attributed this growth to the proactive steps taken by the state government to promote economic growth and attract investments.

    “Uttar Pradesh is now among the fastest growing state-level economies in the country due to simplification of the investment process, ease of doing business and acceleration in infrastructure development,” said Murmu.

    In the same event, Union Minister Narayan Rane stated that India is expected to become the third largest economy by 2030 and UP is going to play a major role in it. He also emphasized the necessity of enhancing citizens’ per capita income to address migration, underscoring the state’s goal of reaching a $1 trillion economy. He also highlighted the per capita income disparities between the United States and India to underscore the importance of economic growth in improving people’s quality of life. Using the instance of industrialization in his home state of Maharashtra, Rane pointed out that comprehensive research and analysis are vital to determine the suitable industries and their optimal locations within various areas or districts.

    Key Sectors for Investment in Uttar Pradesh
    Advice to MSMEs Attracting Investment in Uttar Pradesh

    Key Sectors for Investment in Uttar Pradesh

    Mr. Amit Tyagi, CEO, PayWorld highlighted key sectors that offer the most investment in Uttar Pradesh:

    1. Financial Inclusion: Uttar Pradesh, a populous state with a significant number of underserved population segments, is poised for improved financial inclusion. Fintech companies have a crucial role to play in achieving this by providing innovative and affordable financial products and services tailored to these segments.
    2. Agriculture: As a major agricultural hub in India, Uttar Pradesh offers substantial opportunities for fintech companies to revolutionize the agricultural sector. Fintech solutions, including crop insurance, agricultural financing, and supply chain management, can greatly benefit farmers and other stakeholders.
    3. Small Businesses: Uttar Pradesh is home to a multitude of small businesses, presenting fintech companies with the opportunity to offer a range of services. These services encompass digital payments, accounting software, and access to business loans, supporting the growth and success of these enterprises.

    The Uttar Pradesh government is actively promoting digital payments and fintech solutions, leading to an increasing demand for these services. Fintech companies can address this demand by providing solutions for government-to-citizen payments, tax processing, and subsidy distribution.

    Nevertheless, Indian MSMEs have faced a significant challenge in the form of limited access to credit within the market. To address this issue, both government agencies and non-governmental funding institutions throughout the country have made concerted efforts to facilitate easier access to capital.

    Mr Ameet Venkeshwar, CBO, LoanTap Financial Technologies, said that bridging the credit gap for MSMEs requires a combination of innovative products, customer-centric solutions, and collaboration between various financial institutions and businesses. Other than providing MSMEs loans, he said, “We have our own product called AfterPay Merchant by LoanTap, a dedicated credit solution for MSMEs tailored to accelerate business growth.”

    “We partner with large retailers to assist MSMEs, particularly small retail stores, in gaining easy access to funds through a revolving credit line. This support allows them to benefit from extended payment terms, bolstered working capital, and ensures a stable supply. Mostly the small retailers and Kirana stores are often underserved and this allows us to serve them moving more towards our vision of financial inclusion,” Mr Venkeshwar added.

    Mr Tyagi of PayWorld emphasized, “Our extensive network of merchant points provides MSMEs access to digital financial services, empowering them with digital payments, bank accounts, and e-wallets. Collaborations with financial institutions enable us to offer tailored micro-loans, addressing capital needs for UP’s MSMEs.”

    He stated that they are committed to innovation and the development of digital platforms. He mentioned that tailored products and financial awareness campaigns played a significant role in enhancing their commitment to UP’s economic growth. In a landscape where MSMEs sought credit solutions, Mr. Tyagi believed that PayWorld’s extensive reach and unwavering dedication to digital financial services could be transformative, propelling MSMEs toward prosperity and contributing significantly to the state’s development.

    Advice to MSMEs Attracting Investment in Uttar Pradesh

    Uttar Pradesh boasts a vibrant and flourishing MSME sector, which serves as the cornerstone of the state’s economy. These small and medium-sized enterprises contribute significantly to its GDP and generate millions of jobs. For MSMEs in Uttar Pradesh looking to invest in their growth, several key opportunities exist.

    1. Government Initiatives: To support MSMEs in the state, the state government has initiated various programs, including the One District One Product (ODOP) scheme and the Nivesh Mitra portal. These schemes offer financial and technical assistance to MSMEs, streamlining the process of raising investments and saving both time and money.
    2. PM Vishwakarma Yojana Scheme: The Pradhan Mantri Vishwakarma Kaushal Samman Yojana, a central government initiative, provides skill training to traditional artisans and craftsmen. MSMEs in Uttar Pradesh can leverage this scheme to train their employees, enhancing productivity and making their businesses more appealing to potential investors.
    3. Targeting the Export Market: The export market presents numerous opportunities for the state’s MSMEs, with the government actively promoting exports from the state. By tapping into government support and the growing export sector, MSMEs in UP can expand their operations and attract increased investment.
    4. Leveraging Fintech: Uttar Pradesh’s MSMEs can harness fintech solutions to attract investment and facilitate business growth. They can utilize online crowdfunding platforms to raise capital from a wide investor base. Furthermore, fintech platforms can automate accounting and financial reporting processes, enhancing their appeal to potential investors. Collaborating with fintech companies to develop innovative financial products and services is another avenue through which MSMEs in UP can pique investor interest.

    Mr. Venkeshwar also acknowledged that attracting investment can pose a challenge, but it is an attainable goal when the right strategy and approach are in place. Furthermore, with the sector’s growth on the rise, the outlook appears promising, particularly with new initiatives such as financial inclusion aimed at assisting the underserved sector in India.

    Union Minister Narayan Rane also mentioned that there are approximately 9.5 million MSMEs in the state, and when considering the entire country, there are around 63 million functional MSMEs. He stated that through the MSME sector in Uttar Pradesh, small businessmen and farmers have been finding employment opportunities, and they have been significant contributors to India’s growing economy.

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