Telangana Government has created efficient policy instruments around TSiPASS, T-PRIDE,T-IDEA, RICH, and TASK, TIHCL as part of the MSME ecosystem. MSMEs in the state today do not face power outages, voltage fluctuations. They do not suffer scarcity of industrial water. Tolerance to pollution is going down al bait slowly but surely. Disruptive Digital technologies, particularly Artificial intelligence and Man Machine Learning are changing the ways even small enterprises are moving. Large enterprises are also beelining to the Industrial Parks and Clusters like never before and with no precedence. Credit institutions, however, are yet to match these efforts.

The questions that arise now are: Where are the entrepreneurs? Why are they not crowding in? What to do to make the ecosystem deliver?

Risk profile of the MSME sector indicates the copability and capability of the financial sector. Business Risks surrounding the industry, markets, operational efficiency, Management risks and financial risks impact credit quality, and infringe on stand-alone credit risks. Low NPAs in the sector should drive the financial institutions for proactive interventions and not wait for things to happen.

MUDRA-enabled Banks show more performance in the MSE sector but lending lags for manufacturing MSEs. Textile Mudra has extended the threshold to Rs.20lakhs at the extreme and this also provides great opportunity for Banks and NBFCs to lend for manufacturing MSEs since the State is set to emerge as a major operator in the sector both in domestic and foreign markets.

Enhanced CGTMSE threshold to Rs.2cr is again an opportunity for the banks to move to trust and cash flow based lending from the balance sheet and ratio-based template lending platforms.

The other day I noticed as many as 60 youth both men and women at Cherlapally in the shoes of their parents or grandparents. The aspirations for most of them are moving from legacy and archaic systems to newer ways of doing things; catching up with emerging technologies; setting up new systems and moving to global markets as well.

Banks should view such enterprises differently and wherever such change has been occurring, human assets should be valued and embedded into their risk profiles. This should enable better credit scoring and higher volume of credit to meet the challenges.

Going forward Industrial Clusters should provide lenders a risk mitigation platform and for borrowers, scope for moving to value chain from supply chain management. But such clusters should have interdependence between large enterprises and MSMEs in a seamless manner crossholding the risks. All shall be on ERP platforms enabling easy data-based monitoring. Location of these clusters is indicated in the table below.

Industrial Clusters

Skill Development

According to recent report of a study commissioned by the Planning Department,, Adilabad, Gadwal, Rajanna Siricilla, Siddipet, and Warangal districts require skill adaptation, promotion and skill building in textile technologies (handlooms, power looms, technical textiles, fabrics, apparel and readymade garments. All other districts in Telangana except Wanaparty district require skills related to food processing machining, chemicals, heat treatment as well. Wanaparty district require skill sets related to solar technology. TASK should also encompass providing for industry association interface and incubation centres located in at least four key districts – Warangal, Nizamabad, Adilabad (around IIT) and scaling up the VTIs, ITI and polytechnics both in regard to technologies and faculty.

Future of MSMEs rests on embracing digital technology. Declining growth in lending to the sector from commercial banks provided a great window of opportunity to the NBFCs. The latter are devising credit products based on GST data driven by the latest relaxations in thresholds and submission of returns and take very limited recourse to the credit rating agencies. CRAs have not been able to come up with a rating tool for new enterprises that the lenders can latch upon readily. Banks would do well to look at their lost loan book during the last five years. They should extend credit without cross-selling products like Insurance, MF etc., that led to shortage of working capital upfront.

Competitiveness of future MSMEs comes from knowledge-bases and global markets. Entrepreneur Development Centers in the DICs, NIMSME, and MSME-DI should work in collaboration to identify and train the entrepreneurs and develop shelf of projects around the prospects within as short a time as possible. Lending institutions should tweak their products to cater to such situation providing environment for growth.

Indian MSEs’ rate of vertical growth has not much to cheer as micro and small tended to remain in that status for decades. Product differentiation and price differentiation continue to be drawing less attention. Organization of their sales books needs willpower to move on disciplined accounting track. This would mean a change in the mindset of most of them. Digital training of both bank staff and MSEs needs tools for kicking learning appetite within optimal costs for such initiatives.

Banks should consider failure as integral to the development. Recognizing this, GoI in its Draft Industrial Policy awaiting Cabinet Committee approval recognised Industrial Health Clinic modelled on TIHCL as a key intervention. Revival of a viable enterprise enables dormant fixed assets to activity and sustains the employment in the sector.

Government is also committed to seeing the MSMEs in good health. 75 MSEs through TIHCL are set to join the recently turned around medium and large Rajarajeswari Spinning Mills, Sirpur Kagaz Mills, and the likes with special supports from the government.

Opportunity mapping indicated above unfolds large canvas for those who can take the risks and manage them well. Time and tide wait for no man. Banks and NBFCs would do well to seize the emerging opportunities in the sector.

*The Author is Adviser, Government of Telangana, Telangana Industrial Health Clinic Ltd., The views are personal.