Anjali Malhotra
With over 70 million units, India has one of the largest micro, small, and medium enterprises (MSMEs) base in the world. According to estimates provided by Ministry of MSME (Government of India), the sector contributes a massive 38 per cent to India’s GDP and accounts for 40 per cent and 45 per cent towards export and manufacturing output, respectively. MSMEs are employment generators, innovators, factors in the supply chains of larger enterprises, and important contributors to gross domestic project.
Though cash optimisation is the need of the hour, MSMEs are innovating during this period and striking interesting synergies. The pandemic and the resulting lockdown have impacted the small businesses units, which already operate on a tight liquidity position and credit availability. While the Government, through its several relief schemes, is aiming to address the situation, there is all-pervasive need for creating a safety net for small business owners.
Finance is the key to success in any business, and this holds especially true for MSMEs. Small businesses require funds to buy equipment, refill inventory, expand operations and increase working capital.
Traditionally, MSMEs owners do not have sufficient awareness of business risk management. It makes them vulnerable towards several factors such as theft or act of God, bad health, loss of income due to reasons beyond their control etc. They also need to consider Employee benefits, assets & liability management, and family protection. Therefore, MSMEs need to draw up a prudent financial strategy to navigate such unplanned incidents.
Surprisingly and according to a FICCI-KPMG report, only 10 per cent of employees of SMEs have health cover, and only 0.1 per cent of other core property risks like fire, marine etc. are covered. A lack of awareness, coupled with thin margins, makes insurance a low priority and so it is often neglected by SMEs. And in all the need to protect margins, sometimes these entrepreneurs forget the basics – protecting the very asset against calamities that is their dream! Sometimes the SMEs leave insurance to the lenders that they have borrowed from in which case most of the times the covers may be lower or different than what the entrepreneur should actually have.
Insurer companies have the experience and expertise to quantify the probable risk and offer insurance products that help businesses protect against these. However, we have seen over the years that most MSMEs do not have access to quality insurance from subject matter experts. Even today, the common perception is that insurance translates to either life insurance or health insurance.
The fact is that insurance can cover almost every aspect of the business, be it damage due to natural calamities, supply chain disruptions, unfavourable market movements, or even untimely demise of an employee. Moreover, insurance products can be customised to fit the requirements of industries and small businesses. Depending on the industry and geography, there are several cost-effective and overarching insurance solutions available for them to stay strong with a firm growth cycle. Thus, including insurance as a part of long-term business investment is critical for MSMEs, which may not have huge cash reserves or funding to absorb market shockers.
In most cases, the financial fortunes of their organisation are intricately linked to their well-being. Most MSMEs borrow heavily from the market, and hence there is an obvious need for Life Insurance. To address the problem of under-penetration of insurance among MSMEs, Insurance Regulatory and Development Authority (IRDA) along with insurance companies are taking a step towards educating the MSMEs about various insurance solutions and create awareness on the need for financial security for their business.
Recently, Aviva India partnered with CII for Money Mobility Week, a virtual platform to make over 1000 MSMEs financially self-reliant through connectivity with the financial institutions along with other allied service providers and a step towards the materialisation of the Government’s announcement of special financial package for MSMEs as part of ‘Atma Nirbhar Bharat Abhiyan’. As people are spending more time on digital platforms nowadays, companies can offer a customised and transparent solution to cater to the specific needs of MSMEs.
A case in point is Aviva SME Assist. It is a digital tool that helps small business owners understand their risk profile within three simple steps. The industry needs similar ‘Do it Yourself’ solutions which help MSMEs take more informed financial planning decisions.
Taking lessons from the recent crisis, it is vital to chalk up an effective crisis management plan that will take into consideration both immediate and long-term impact. Hence, from creating a financial back-up, investing in insurance policies and reservoir of funding, to have a robust digital and technology-enabled ecosystem that can ensure minimum damage to productivity needs to be in place. Supporting MSME sector development is essential to employment and economic growth.
As such, reducing the credit gap and improving access to finance is crucial, especially credit for MSMEs. In addition to initiatives targeting availability of executable collateral and credit risk assessment, the improvement of MSME risk management systems is important. At the same time, as insurers, we also need to simplify the entire customer journey, i.e., evaluating, buying, and claiming the insurance benefits to secure their future.
It will help MSMEs secure their future and play an even bigger role in India’s economic growth in the days to come. If anything, the lockdown can help us learn important business lessons that can help us not only survive but also thrive and be well prepared for any other crisis that might come our way in the future.
