Economy - Reports
MSMEs should strive for greater credit discipline and continue to embrace formalisation As on : 26-Nov-24  11:43

MSMEs should strive for greater credit discipline which starts with careful selection of the appropriate credit product suited to their requirements and cash flows, according to Swaminathan J, Deputy Governor, Reserve Bank of India. He noted in a latest speech that MSMEs should prioritise formalisation. Many MSMEs operate informally, making it challenging for lenders to assess their creditworthiness due to information asymmetry, particularly regarding their financial performance. By registering on the Udyam Portal and filing GST returns, MSMEs can enhance the transparency over their level of business activity and financials. This will enhance their credibility and may qualify them for priority sector lending and government schemes, by reinforcing their trustworthiness in the eyes of financial institutions.

Continuing with embracing formalisation, MSMEs should maintain comprehensive and accurate financial records which are essential for seeking credibility with lenders. MSMEs should adopt proper accounting practices, ensuring their financial records, such as income statements, balance sheets, and cash flow statements are accurate and reliable. Having financial statements prepared by certified professionals and audited by qualified auditors shall further bolster their credibility. Along with formalization, adopting digital payment systems like UPI and online banking creates a digital footprint of financial transactions, making it easier for lenders to assess financials of the firm. Digital payments also improve cash flow management; offering MSMEs greater control over their finances and helping them maintain a clear financial record.

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