Image credit: Samhita CGF
For over 110 million people in India working in the MSME sector, the last 15 months have been a veritable nightmare. The pandemic induced disruption in demand, credit availability and labour supply have been a pincer movement that has devastated the financial health of many MSMEs. Surveys estimate that 82% of MSMEs were negatively impacted by the first wave of the pandemic, and 25-40% of them could shut shop. The second wave will, in all likelihood, make these numbers worse.
For decades, MSMEs have operated in an adverse business environment with a lack of affordable credit, inefficient supply chains, onerous compliance obligations and weak access to markets. For the MSME sector to recover from this devastating period, innovative, new approaches have to be sought out to address persistent, systemic challenges that have plagued the sector.
Omidyar Network India set up The ReSolve MSME Initiative specifically to be able to catalyse such initiatives that could become beacons of hope for the MSME sector in this time of great distress. We set out on this journey by first identifying four potential areas where innovative solutions were needed. These areas were:
Six months on, we are delighted to have partnered with two unique, innovative and path-breaking initiatives that has sought to address some of these most intricate challenges in the MSME sector.
Global Alliance of Mass Entrepreneurship: For a small entrepreneur, operating in the best of times requires regularly overcoming regulatory hurdles. Research by Avantis shows that a typical MSME has to file over 750 compliances every year. The spectre of inspector raj looms on a daily basis.
One of the key insights we had while engaging with the different stakeholders in the MSME sector through the ReSolve initiative was that challenges to the small businesses sector tend to be uniquely interconnected. Hence if we want to tackle some of the persistent issues in the MSME sector such as the 16.6 lakh crore credit gap in the sector or pervasive informality, one needs to take a comprehensive, systems-level view instead of focusing on each aspect in isolation.
The Government of Punjab with the support of a coalition of organisations led by the Global Alliance for Mass Entrepreneurship (GAME) has sought to tackle the challenges of the MSME sector with a path-breaking effort that applies a systems-led approach to improving the ease of doing (small) business in the state.
Led by GAME, a team comprising of experts from the Centre for Civil Society, Avantis and PwC, is working with the Government of Punjab on this project. Based on rapid expert analysis, the Government of Punjab was able to rationalize the number of labour registers to be maintained by an MSME from 60 to 14, decriminalize more than 300 low-risk offences and reduce discretionary powers of labour inspectors. More ambitious steps like rationalising and reducing the number of licenses, change of land use and easing access to utility connections is on the anvil.
The MSME focus of this project as well as the clear “rationalise, digitise, and decriminalize” approach offers an effective framework through which to structure EoDB reforms. We are excited to have supported this project and believe that this could be a “lighthouse” model that other states could look to replicate and can be further proof of effective public-private partnerships.
World Bank – MicroSave: The Indian MSME eco-system lacked a high-quality data system that captured MSME pain points, financial and operational health. Such an effort also needed the ability to channel such data into key feedback loops for necessary industry action and policy interventions.
The heterogeneous nature of the MSME sector posed a great challenge to comprehensive data collection. Most existing efforts tended to overlook micro-enterprises that are often unregistered, lacked the frequency/ consistency that made temporal comparisons possible and often lacked a deeper focus on the lived experience of MSMEs, (e.g., business environment, bottlenecks to financial access, reach of government schemes etc)
Hence, creating an independent, credible body of data on the lived experience of MSMEs in India, with a particular focus on micro-enterprises was one of the key areas focus for the ReSolve MSME initiative. The World Bank Group and Micro Save consulting have come together for a pioneering effort focused on addressing the MSME data gap.
This effort includes the often-overlooked segments of the MSME ecosystem such as the informal enterprises and micro-enterprises while also building a deep, nuanced understanding of the financial lives of India’s MSMEs by deploying a financial diaries approach for MSMEs.
We are excited to support this effort that will lead to a robust data source and believe this is an important step to ensure that the voice of the MSME is amplified in the Indian policy and economic discourse.
Looking ahead, we see several areas of opportunity for innovative, lighthouse solutions in the MSME sector, we are particularly excited to look at solutions for the following issues:
Under The ReSolve MSME Initiative, we are on the lookout for partners working in these areas. If you are working on such solutions and would like to partner together, please get in touch on [email protected]