Adopt supportive, empathetic approach towards MSMEs: RBI dy guv to lenders

Reserve Bank Deputy Governor Swaminathan J has asked financial institutions to adopt a more sensitive and empathetic approach towards MSMEs, and deploy supportive measures like restructuring options for loans, to support the sector which plays a key role in the economy.

In a speech at the Annual Day of the Foreign Exchange Dealers Association of India (FEDAI) here, the deputy governor said MSMEs face challenges like access to affordable finance, delayed payments, infrastructure bottlenecks, and requirements of compliance, among others.

The journey of India's economic transformation cannot be complete without the robust development of the MSME sector.

"MSMEs are not just the backbone of our economy, they are the engines of growth, innovation, and employment," he said at the event held on Wednesday.

However, for these enterprises to truly thrive and scale up, the financial sector must step up with innovative solutions, sensitivity, and a forward-looking approach, Swaminathan said.

"This is not just about providing credit; it's about enabling these enterprises compete globally, drive exports, and contribute to the nation's goal of becoming a developed economy by 2047. While financial instruments and support mechanisms are crucial, the way we engage with the MSME sector, our sensitivity to their challenges and our commitment to their success, will ultimately determine the strength and sustainability of this partnership," he said.

The deputy governor also emphasised that considering the key role that MSMEs play in the economy, the financial sector should adopt a more sensitive and empathetic approach towards them.

"While financial discipline is crucial, the unique challenges faced by MSMEs, such as low capital base, lack of scale, cash flow constraints from delayed payments, fluctuating market conditions, and external economic pressures, necessitate a more nuanced approach to assessment as well as follow-up," he said.

While timely repayment of dues is crucial to maintain the health of the financial system, financial institutions should focus on deploying supportive measures such as restructuring options, grace periods, and tailored repayment plans that give MSMEs the breathing space they need to recover and get back on track while encountering difficult situations, the senior official said at the event attended by representatives of financial sector, among others.

He further said the financial sector can play a crucial role in boosting MSME exports by offering targeted support and tailored services that address the unique challenges these businesses face in the global market.

Beyond traditional products like pre and post-shipment finance, factoring, and invoice discounting, the sector can significantly aid MSMEs in managing risks through export credit insurance and currency risk hedging solutions.

These financial instruments not only protect against payment defaults and currency fluctuations but also provide MSMEs with the confidence to explore and expand into new international markets, he said.

Swaminathan also highlighted the various initiatives taken by the Reserve Bank to promote innovation in financing to MSMEs.

Recently, the third cohort of the RBI Regulatory Sandbox was dedicated for MSME lending, where five ideas were found viable.