Access to credit to Micro, Small and Medium Enterprises (MSMEs) and low income groups for income generating purposes

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Access to credit to Micro, Small and Medium Enterprises (MSMEs) and low income groups for income generating purposes
SectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Financials
Corporate and Retail Banking
Business Model Description

Fintech or Alternative Lending models that leverage technology to utilize alternative data such as GST (Goods and Services Tax) that allows an insight into business parameters such as inputs, value, place of business, amount of taxes levied to derive information about business book size, assess financial risk appetites and gauge capacity to service further debt obligations. Utility bills, bank account statements are some other data points that are used.

Fintech lenders offering invoice financing as a short-term working capital facility based on unpaid invoices of MSME clients/customers to help in solving liquidity related challenges in the short term.

Peer to Peer (P2P) lending model that is a digital marketplace connecting borrowers with lenders allowing quick access to low cost loans.

Cluster financing model approach to lending is intended to provide a full-service approach to cater to the diverse needs of MSME business units operating in a particular region and within a distinct, well defined business cluster such as leather making or food processing. Financial service providers have been using this approach to identify clusters and organize them by similar data points that allows for predictability around businesses’ capacity to service debt, risk profiles and product needs.

Traditional microfinance business models implemented by NBFC (Non Banking Fianncial Companies) MFIs (Microfinance Institutions), Small Finance Banks using Joint Liability Group (JLG) model, to provide collateral free loans to low income segments primarily from the micro and small enterprise categories. The JLG model is also primarily constituted by women members of the households that operate the enterprises seeking credit from financial institutions.

Expected Impact

Enhancing productivity and economic resilience of micro and small businesses through access to working capital and debt financing for their business needs.

Indicative ReturnDescribes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
> 25% (in IRR)
Investment TimeframeDescribes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Short Term (0–5 years)
Market SizeDescribes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
> USD 1 billion
Average Ticket Size (USD)Describes the USD amount for a typical investment required in the IOA.
In 2019, at USD 9.1 billion, PE/VC investments in the financial services sector in India was up by 20% compared to the previous year. (16.10)
Direct ImpactDescribes the primary SDG(s) the IOA addresses.
No Poverty (SDG 1) Decent Work and Economic Growth (SDG 8) Industry, Innovation and Infrastructure (SDG 9)
Indirect ImpactDescribes the secondary SDG(s) the IOA addresses.
Zero Hunger (SDG 2) Good health and well-being (SDG 3) Gender Equality (SDG 5) Reduced Inequalities (SDG 10) Partnerships For the Goals (SDG 17)
Sector Sources
  • (5.1) https://www.uncdf.org/financial-inclusion-and-the-sdgs (5.2) https://niti.gov.in/sites/default/files/2018-12/FirstDeltaRanking-May2018-AspirationalRanking.pdf (5.3) https://gflec.org/wp-content/uploads/2015/11/3313-Finlit_Report_FINAL-5.11.16.pdf?x38887 (5.4) https://content.centerforfinancialinclusion.org/wpcontent/uploads/sites/2/2018/08/Agents_of_Change_India_FINAL-1.pdf (5.5) https://globalfindex.worldbank.org/ (5.6) https://globalfindex.worldbank.org/#:~:text=The%20Global%20Findex%20database%20is,make%20payments%2C%20and%20manage%20risk.&text=The%20data%20are%20collected%20in,adults%20in%20over%20140%20economies. (5.7) https://www.business-standard.com/article/news-cm/msmes-contribute-29-7-of-india-s-gdp-119120200888_1.html (5.8) https://pib.gov.in/Pressreleaseshare.aspx?PRID=1579757 (5.9) https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx?Id=1259 (5.10) https://www.intellecap.com/wp-content/uploads/2019/04/Financing-Indias-MSMEs-Estimation-of-Debt-Requireme-nt-of-MSMEs-in_India.pdf (5.11) https://www.pwc.in/assets/pdfs/consulting/financial-services/fintech/publications/a-wider-circle-digital-lending-and-the-changing-landscape-of-financial-inclusion.pdf (5.12) https://www.irdai.gov.in/admincms/cms/uploadedfiles/annual%20reports/IRDAI%20English%20Annual%20Report%202018-19.pdf (5.13) https://data.worldbank.org/indicator/per_si_allsi.cov_q1_tot?locations=IN (5.14) https://www.dvara.com/blog/2019/11/27/the-state-of-micro-pensions-in-india/ (5.15) https://economictimes.indiatimes.com/industry/banking/finance/banking/govt-asks-banks-to-open-15000-branches-in-fy21/articleshow/73286116.cms?from=mdr (5.16) https://www.grameenfoundation.in/decoding-bank-account-usage-by-low-income-segments-placing-reality-in-digital-ecosystem/ (5.17) https://www.trai.gov.in/release-publication/reports/telecom-subscriptions-reports (5.18) https://www.iamai.in/KnowledgeCentre [Digital in India 2019- Round 2 Report] (5.19) https://niti.gov.in/sites/default/files/2019-01/Strategy_for_New_India_0.pdf (5.20) http://documents1.worldbank.org/curated/en/989721587512418006/pdf/COVID-19-Crisis-Through-a-Migration-Lens.pdf (5.21) https://www.worldbank.org/en/news/press-release/2020/06/30/world-bank-approves-750-million-emergency-response-program-for-micro-small-and-medium-enterprises-in-india (5.22) https://www.microsave.net/wp-content/uploads/2020/06/Impact-of-COVID-19-pandemic-on-micro-small-and-medium-enterprises-MSMEs-India-report-1.pdf (5.23) COVID 19 Impact on Financial Services Sector: April 2020; EY (5.24) https://www.npci.org.in/product-statistics/upi-product-statistics
IOA Sources
  • (16.1) https://www.intellecap.com/wp-content/uploads/2019/04/Financing-Indias-MSMEs-Estimation-of-Debt-Requireme-nt-of-MSMEs-in_India.pdf (16.2) https://www.smefinanceforum.org/data-sites/msme-finance-gap (16.3) https://www.pwc.in/assets/pdfs/consulting/financial-services/vision-of-microfinance-in-india.pdf (16.4) https://www.sidbi.in/files/article/articlefiles/Microfinance-Pulse-June-2020.pdf (16.5) https://www.india-briefing.com/news/micro-small-medium-enterprises-india-explainer 17887.html/#:~:text=As%20per%20the%20official%20estimates,total%20MSMEs%20in%20the%20country (16.6) https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=3797 (16.7) https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9827#5 (16.8) https://rbidocs.rbi.org.in/rdocs/content/pdfs/NSFIREPORT100119.pdf (16.9) https://www.business-standard.com/article/news-cm/msmes-contribute-29-7-of-india-s-gdp-119120200888_1.html (16.10) https://webcache.googleusercontent.com/search?q=cache:U7k_2eUcD0oJ:https://assets.ey.com/content/dam/ey-sites/ey-com/en_in/topics/private-equity/pe-vc/covid-19-projected-impact-on-indian-pevc.pdf%3Fdownload+&cd=11&hl=en&ct=clnk&gl=in (16.11) https://www.vccircle.com/warburg-pincus-on-track-for-its-single-biggest-multibagger-from-india-bet (16.12) https://www.vccircle.com/sarva-capital-scores-multi-bagger-exit-from-non-bank-lender (16.13) https://www.icraresearch.in/research/ViewResearchReport/2121 (16.14) https://www.pwc.in/assets/pdfs/consulting/financial-services/vision-of-microfinance-in-india.pdf (16.15) https://www.cii.in/Sectors.aspx?enc=prvePUj2bdMtgTmvPwvisYH+5EnGjyGXO9hLECvTuNuXK6QP3tp4gPGuPr/xpT2f (16.16) https://msme.gov.in/sites/default/files/Annualrprt.pdf (16.17) https://m.dailyhunt.in/news/india/english/yourstory-epaper-yourstory/accion+sells+stake+in+aye+finance+to+a91+partners-newsid-n159664284 (16.18) https://rbidocs.rbi.org.in/rdocs/content/pdfs/NSFIREPORT100119.pdf (16.19) https://www.india.gov.in/spotlight/pradhan-mantri-jan-dhan-yojana-pmjdy#tab=tab-1 (16.20) https://financialservices.gov.in/financial-inclusion-schemes (16.21) https://financialservices.gov.in/banking-divisions/Important-Schemes (16.22) https://udyamimitra.in/page/about-ccc (16.23) https://msme.gov.in/sites/default/files/MSMEPackageFinalFinal.pdf (16.24) https://rbidocs.rbi.org.in/rdocs/content/pdfs/NSFIREPORT100119.pdf (16.25) https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10497 (16.26) https://m.rbi.org.in/commonperson/English/Scripts/Notification.aspx?Id=1428#6 (16.27) https://rbidocs.rbi.org.in/rdocs/content/pdfs/NSFIREPORT100119.pdf (16.28) https://www.sebi.gov.in/legal/circulars/oct-2013/listing-of-specified-securities-of-small-and-medium-enterprises-on-the-institutional-trading-platform-in-a-sme-exchange-without-making-an-initial-public-offer-_25580.html (16.29) https://www.financialexpress.com/industry/msme-fin-indias-answer-to-its-problem-of-380-billion-msme-credit-gap-lies-in-these-type-of-lenders-to-step-up/1887426/ (16.30) https://www.thehindubusinessline.com/money-and-banking/rbi-incentive-for-banks-to-address-regional-disparities-in-priority-sector-lending/article32283836.ece# (16.31) https://m.rbi.org.in/Scripts/FAQView.aspx?Id=87#:~:text=Loans%20to%20individuals%20up%20to,the%20dwelling%20unit%20in%20the (16.32) https://m.rbi.org.in/Scripts/FAQView.aspx?Id=87#:~:text=Loans%20to%20individuals%20up%20to,the%20dwelling%20unit%20in%20the (16.33) https://www.cnbctv18.com/finance/heres-how-banks-and-nbfcs-will-benefit-from-nirmala-sitharamans-tax-bonanza-4385871.htm (16.34) https://www2.deloitte.com/content/dam/Deloitte/in/Documents/tax/Regulatory%20Alert/in-tax-regulatory-alert-measures-announced-in-india-fight-against-COVID-19-13May2020-noexp.pdf (16.35) https://www.livemint.com/industry/banking/microfinance-industry-posts-38-growth-in-2018-19-1559564596042.html (16.36) https://economictimes.indiatimes.com/small-biz/sme-sector/over-one-third-msmes-start-shutting-shop-as-recovery-amid-covid-19-looks-unlikely-aimo-survey/articleshow/76141969.cms