Demonetization Could Become the Stepping Stone For Indian SMEs to Embrace Digitization With digital lending platforms offering working capital finance in a click of a button, these segments will be able to avail easy, instant credit and eventually drive up business volumes - Capital Float

Demonetization is said to have come with its own set of pros and cons. From the dismal sight of serpentine queues outside banks and ATMs, to autowalas and panwalas taking a digitized approach towards the situation by using digital wallets.

Today at BIZ Experiences India, we are trying to understand how the Small and Medium Enterprises (SME) can milk advantage out of this situation.

Let's go digital

SMEs, who had so far shunned digitization, demonetization could be their first step to embrace digitization. Industry experts believe that SMEs, who were hesitant about going digital, will now have to hop on to this territory to streamline operations. New generation of SMEs, who will take over from their fathers, will gradually adopt digital technology tactics to cut down supply chain costs and streamline operations at businesses.

Organic Harvest Founder and CEO Rahul Agarwal agreed that the a big, bang reform like this could have various impact across sub-sectors. Having said that, Rahul also added, "So, for companies like us who target the middle and upper middle income category of customers, the sales were affected initially, for a few days at the macro level but since most of our customers are urban based they immediately shifted to plastic money and digital wallet. Hence, things came back to normal very soon. But when we talk about the distribution channel partners, they are still facing a cash crunch and it might take two to three months for them to get back to the regular business cycle.

The effect is going to vary from industry to industry and their target customers. Most of the SMEs have realized the importance and the benefits of accepting and making payment digitally. So, they are adapting very fast and in the long run, it will be beneficial for the whole economy."

"We at Freshmen's Valley have emphasized and implemented secure network payment policies for our farmers and associates right from its inception. The current demonetization scenario, has had a marginal impact on the distributors and retailers, but going forward this is the only way for a positive and secured environment," Anant Choudhary, Founder and Director at Freshmen's Valley.

Cheaper loans

According to official estimates, the incoming bank deposits could help cash burdened SMEs and MSMEs to get loans at lower rates. Sashank Rishyasringa, Co-founder & Managing Director at Capital Float, which provides loans to this section of business owners said MSMEs that rely on cash payments between buyers and suppliers will feel the effects of demonetization most acutely. "These will include large swaths of unorganized retail – kirana stores, small distributors, merchants – as well as producers and traders operating in cash-dominated segments such as transportation and agricultural commodities. SMEs in these segments used to approach the informal lending sector for their working capital needs. Cash liquidity concerns are causing these borrowers to shift their focus towards the formal lending space. With digital lending platforms offering working capital finance in a click of a button, these segments will be able to avail easy, instant credit and eventually drive up business volumes," he adds.

With the government now it mandatory for the government departments to make any payment above Rs 5000 to suppliers, contractors, grantee/loan institutions, this could further fuel actual businesses adopt newer strategies and mark new strides in the SME space.