Page 24 - coffee table book-Nov 2020 - web_Neat

7 The recent directive of the RBI for banks to link their encouraging them to see India as an alternative to China.
While this effort requires broader, centre-level policy
interest rates to external benchmarks is a step in the right
direction. Small businesses will do well to shift to the new changes to materialize, it opens avenues for small
regime where rate cuts from the central bank are reflected entrepreneurs to grab their share of the market – which is
sooner in the rates they lend from banks. currently dominated by China.

GEARING UP FOR THE NEW NORMAL: HOW Differentiating between liquidity and solvency: In such cases, small businesses can opt for supply chain
While banks expect their borrowers to be solvent over a
financing, that helps them to cheaper credit from banks
SMES CAN MANAGE THEIR FINANCES period of time, cashflow mismatch is something they have based on the comfort factor provided by MNCs who avail
goods/services from them. Not only does the Indian MNC
ignored for quite some time. Let’s take a hypothetical. Say a
BETTER IN THE POST-COVID ECONOMY small-scale manufacturer from Tirupur supplies PPEs to get assured funding from the banking system, but its small
suppliers (who may not be well known or have enough
government hospitals. While he enjoys favourable demand
(translating to good top line), the hospitals are making things bargaining power) also get to secure cheap funding, so that
difficult by delaying payments, thereby stretching out the the entire supply chain is well equipped for global
Jaya Vaidhyanathan time to realise the proceeds of his sale. In this case, what competitiveness.
CEO, BCT Digital
the small business owner needs is temporary funding to
June 04 2020 meet his cash crunch - cashflow financing - rather than Keeping tabs on borrowings: Entrepreneurial ventures
funding to buy assets. need to keep their debt burdens at manageable levels.
Another black swan event like the COVID-19 pandemic will
SBI has recently announced the change of the credit likely wipe out debt-laden businesses. Small businesses that
appraisal model for small businesses from asset-based to compromise on growth temporarily by keeping
cashflow-based financing. This will be a gamechanger, indebtedness low are likely to sustain a good momentum of
leading to easier funding for businesses that do not fit the growth over the longer period.
traditional working capital models of large corporates that
the banks are used to funding. While banks have a responsibility to ensure that loan funds
are put to optimal use, borrowers also need to realise that
Going digital to reduce concentration risk: This resorting to uncouth tactics, like funding long-term assets
lockdown period saw our neighbourhood “kirana” shops using working capital borrowing, is only going to damage
innovating quickly to meet public demand - by taking orders their competitive streak by permanently tarnishing their
over the phone, arranging hyper local door delivery, and the image in the market.
like. On the other end of the spectrum, India’s largest
company is also doing the same with the test launch of
JioMart in Mumbai that provisions orders of groceries over
WhatsApp. Both are essentially reaching out to a wider
customer base, now that digital is trumping brick-and- Small businesses find
mortar, even in sectors like education.
themselves in a
Businesses can be small in size, but big in reach, so that they precarious situation
are not at the mercy of a handful of customers. Digital can
be truly empowering in this regard. A few weeks ago, the today. Yes, the
weavers of rural Bihar, with their garment inventory stuck
due to lockdown, were able to sell sarees through Twitter economy is in a bad
Small businesses find themselves in a precarious situation Alleviating the punishing interest burden: The promotion!
today. Yes, the economy is in a bad shape now, but it was so Reserve Bank of India (RBI) has been criticised in the past for shape now, but it was
even before the outbreak of COVID-19, and small keeping interest rates high, making it difficult for small Green shoots and greeneld industries: The
businesses were undergoing a prolonged period of businesses to compete with conglomerates or foreign emotional backlash against China in these times could so even before the
lacklustre demand. This has since worsened. Assuming the competitors who enjoy cheap credit in currencies like the potentially develop into an economic backlash, with
night is darkest just before the dawn, small businesses can USD. While the RBI has dramatically reduced interest rates countries across the globe wanting to diversify their supply outbreak of COVID-19
hope to reboot operations once the dust settles. Let’s see over the last two years, banks have hardly passed on this chain and neutralize their dependency on China. In India,
how a changed approach towards finances can help speed reduction to their customers, constrained by their own for instance, discussions are full-on with foreign companies
things along. limitations in the form of high NPAs and such.

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