The Centre for Family Managed Business at Bhavan’s SPJIMR and Magma Fincorp have partnered to bring out a research report on the financial impact of Covid on MSMEs in India and their business outlook amidst the pandemic. It is titled: ‘Report on the financial impact of Covid on Indian Micro and Small Enterprises and their outlook amidst Covid’.
Magma Fincorp is an NBFC registered with the RBI as an Asset Finance Company, with its presence in more than 22 states and one Union Territory, with deep presence in rural and semi-rural India. Its customers are essentially firms belonging to the Micro, Small and Medium Sector and are spread across 70 locations.
Extensive survey
As part of the industry-academia interface followed by the school, SPJIMR worked on analysing a deep and extensive survey covering more than 14,444 SMEs. Magma designed and administered the survey in the second half of May 2020, over a fortnight, and this involved rigorous phone calls and filling up of questionnaires on the part of the respondents. The survey consisted of questions to assess the financial impact of the pandemic and the outlook towards earnings as also their response to the policy initiatives announced by the government. SPJIMR then used this survey and combined it with available demographic data of the respondents to arrive at the results.
A majority of the respondents (73 per cent) were from the micro and small sectors. More than two-thirds of the businesses surveyed were in the non-essentials business, and were from Southern and Western India. The respondent firms belonged to various industries.
Almost half the micro and small firms stated that the impact of Covid on earnings was between 20-50 per cent. There is ordinality in terms of firm size, as measured by annual turnover, on financial impact due to the Covid as also on business outlook. Even within the MSME sector, smaller sized firms’ earnings were more affected by the pandemic. Similarly, smaller sized firms had a more negative outlook than larger sized firms. The need for loans among the smaller firms was greater.
Across regions, sectors
North and East India reported greater negative outlook among the geographical regions. Respondents seem to be far more positive about their own financial health, with 76 per cent respondents rating themselves average or above average. Some 53 per cent of the respondents had availed of the government’s moratorium either from Magma or from other lenders. 51 per cent stated that they did not need to borrow.
Both essentials and non-essential manufacturers/suppliers stated a similar impact on earnings, viz. less than 50 per cent. However, close to half the respondents in the non-essential sector were negative in outlook , compared to the 25 per cent for those in the essentials businesses.
Of the industries, Health care, Telecom, Oil & Gas, Pharmaceuticals and FMCG displayed the highest positive outlook, while Tourism & Hospitality, Gems & Jewellery, Power & utilities, textiles and electronics displayed highest negative sentiments. Tourism and hospitality sectors appear to be the worst affected in terms of impact on earnings, while the pharma sector is the least affected.
Large sample size, good data
Manish Jaiswal, MD & CEO , Magma Housing Finance & SME Business, said : “The joint report prepared by Magma and SPJIMR is an outcome of deep as well as extensive survey carried out over 98 per cent of Magma Fincorp’s SME customers, numbering 14,444 enterprises, across 70 locations between May 15- May 31, 2020. It uses multi-level data points, with a combination of internal and external data. This is one of the largest sample sizes with precise structured and unstructured data coming from MSMEs and deploys the best of researching capabilities of SPJIMR to present a cogent and crisp response to understanding the financial impact of Covid on MSMEs.”
He added that: “Another key outcome of the report is the revelation of the deep transformation that will be required in the underwriting standards, which will need to deploy a plethora of data trails and data emerging from multiple variables arising out of structured and unstructured transactions which have been ignored hitherto. Conventional underwriting models will undergo a quiet requiem post the Covid pandemic, teaching us a few lessons along the way.”
Dr. Tulsi Jayakumar, Professor, Economics, and Chairperson, Family Managed Business, SPJIMR, stated: “The Centre for Family Managed Business, Bhavan's SPJIMR has been a pioneer in supporting and fostering growth of MSMEs in India, which are essentially Family Managed Businesses, through both academic and advisory and consulting inputs. This report is a step in the direction of fostering SMEs amidst this crisis situation, as also building a meaningful and relevant industry-academia interface. The SMEs represent the under-served segments and research and practice in this area is in line with SPJIMR’s mission of Influencing Practice.”
Magma and SPJIMR plan to work together at building knowledge in this under-served area through further collaboration and engagement.