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Interview: The Budget should extend the credit guarantee scheme available for MSMEs: Umesh Mohanan, CEO of Indel Money

Umesh Mohanan, Executive Director and CEO of Indel Money tells TechGraph that, “Extending credit guarantee scheme available for MSMEs, will help them to get access to credit from NBFCs without much difficulty.”

Here is the complete transcript: 

TechGraph: What is the present liquidity condition of the NBFCs?

Umesh Mohanan: The liquidity scenario in the NBFC sector has improved significantly thanks to fresh fund infusion by RBI through various schemes. Having said that, easing liquidity stress or increasing disbursement depends on the collection efficiency which varies across sectors. The sectors which have been affected are microfinance institutions, consumer vehicle finance, etc.

TechGraph: NBFCs have recently come under the scanner for poor corporate governance. Being a fast-growing NBFC, how are you addressing the issue?

Umesh Mohanan: We are following stringent corporate governance standards. Even though we are a 100% family-owned company, in the 8-member board of directors, only 3 members are from the family and the rest 5 are eminent dignitaries and experienced industry professionals such as the Current Assoc Mutual Fund India, CEO, former deputy managing director of State Bank of India, former principal chief general manager of Reserve Bank of India and practicing chartered accountants. 

Besides this, we have hired a team from KPMG which operates in our corporate office. The team functions as the CEO’s back office, performing concurrent audits on procedures and processes throughout. Before any proposal is tabled to the board of directors, it is vetted by the KPMG team. One of the KPMG partners is always a special invitee to the board meetings.

TechGraph: What are the measures the budget should propose to extend credit facilities to the MSME sector?

Umesh Mohanan: First and foremost, the Budget should extend the credit guarantee scheme available for MSMEs. That will help them to get access to credit from NBFCs without much difficulty. Second, the FM should also take some pointed steps to improve invoice financing.  

A start could be made by extending the Trade Receivable Discounting systems or TReDS to cover MSMEs. Finally, the FM should spell out some concrete steps to ensure working capital financing for small businesses. For this, a special scheme to allow MSME to float subordinated debt should be proposed in the Budget.  

Since subordinate debt instruments belong to the class of quasi-equity instruments they could be fully guaranteed through the Credit Guarantee Trust for Medium and Small Entrepreneurs (CGTMSE).

TechGraph: What are the pandemic-driven new normal scenarios that the budget should address as far as MSME credit availability is concerned?

Umesh Mohanan: At this point, it is difficult to say what is the new normal going to be since MSMEs have yet to find their feet as the scars inflicted by the pandemic are running deep.

TechGraph: What is the cause of credit under-penetration in the MSME sector? What are the measures that the budget can propose to alleviate the credit woes of the sector?

Umesh Mohanan: It is a well-known fact that the main thing that stands between MSMEs and credit is the former’s patchy credit history. Also with big banks focusing on large ticket corporate loans and syndications, the only source for credit for MSMEs may be NBFCs. 

Having said this, the Government can do a lot by pushing NBFCs to make their entire accounting system transparent by incentivizing them to migrate to digital platforms.  

In my view, a beginning could be made by enhancing the scale and scope of GSTN which already has a solid database of MSMEs

TechGraph: There has already been a demand for the reduction of the GST rate on most of the professional services from 18 percent currently to 5 percent to fuel growth in the MSME segment. Your views on this?

Umesh Mohanan: I wholeheartedly welcome it and endorse it from my bottom of my heart.

TechGraph: MSMEs have suggested exempting banks from Basel norms for three years including suspending bank loan ratings (BLR) to help lending in difficult times. Your views on this?

Umesh Mohanan: In my opinion, that is the need of the hour. But I am not sure whether the Budget could do anything about it since Basel norms have a binding on the sovereign.

TechGraph: The gold loan industry has traditionally been a pillar of support for small businesses and households in need of emergency short-term assistance and unorganized lending. What’s your budget wish-list from the gold loan NBFC perspective?

Umesh Mohanan: The most important thing I expect from the Budget is an assurance on the availability of credit. Also, access to quasi-equity products for growth capital will do a lot of good for us. 

The budget should also have some proposal to allow gold loan NBFCs to issue innovative financial products to raise capital from the debt market.

The FM could also introduce some job guarantee schemes on the lines of the payroll protection program in the US to help not only the wheels turning for MSMEs but also ensure employment and income security to lakhs of workers.  

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