‘Priority lending, urging FMCGs and e-commerce firms to lend may ease small retailers’ credit crisis’

Credit and Finance for MSMEs: Giving priority lending status to certain retail subsectors and encouraging large organised retail players, e-commerce players, and manufacturers to lend can help traditional small retailers and traders with their liquidity requirements, consulting firm Kearney said on Tuesday. The suggestions were part of the key measures recommended in a report titled National Retail Policy: To enable the next wave of retail growth by Kearney along with industry body CII to the government ahead of the upcoming National Retail Trade Policy. The report said that giving specific retail subsectors priority-sector status can unlock a large volume of capital from public-sector banks at low-interest rates apart from exploring flexible options with quicker processing time, streamlined loan approval process, and non-fixed asset-based collateral such as receivables to ease credit crunch for such retailers.

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Manufacturers such as FMCG companies can also give their direct retailers extended credit period or working capital loans against receivables to help them, the report added. The recommendations come days after the government had announced an extension to its Rs 3 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) from October 31, 2020, to November 30 and further till March 31, 2021, to offer collateral-free credit support to Covid-hit MSMEs and other businesses. As of November 12, 2020, Rs 2.05 lakh crore loan amount was sanctioned to 61 lakh borrowers out of which Rs 1.52 lakh crore was disbursed.

“A National Retail Policy should consider all aspects of retail, especially traditional retail, which is hit hardest by the ongoing pandemic…specifically for unorganized retail, there is a need to improve access to capital as well as enable technology-led modernization,” said Subhendu Roy, Partner, Consumer Goods and Retail, Kearney. Addressing a FICCI event last month, Minister of State for Commerce and Industry Ministry Som Parkash had said that “we are in the final stage of drafting a National Logistics Policy, New Industrial Policy, e-commerce Policy and National Retail Trade policy.”

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Even as the government had multiple initiatives towards solving working capital challenges for MSMEs, the credit gap for the units stood at Rs 16 lakh crore out of which the retail sector accounted for 30 per cent, according to the IFC Intellecap report 2018. The pandemic impact had caused a further impact on the retail sector particularly small retailers with around 5-7 lakh retailers permanently shutting their businesses, the report said. Small retailers would need flexible term loan products at lower interest rates of around 8 per cent instead of 15-25 per cent at which NBFCs and specialized lenders offer loans to retailers, it added.

The report also suggested the government to enable technology advantage to make lending easier by setting up a platform to register traditional retailers and onboard startups to help ascertain the creditworthiness of borrowers and design suitable loan products. Lastly, the government should launch awareness programmes to improve financial literacy among retail borrowers by partnering with retailer bodies to educate retailers about securing credit through formal channels.