Unlocking growth in medium enterprises with access to debt capital

The importance of India’s micro, small and medium enterprises (MSME) sector — most importantly, the mid-market enterprises that account for about 20,000 companies — cannot be overstated. Indian MSMEs, in particular, the mid-market enterprises account for a massive 30% of India’s GDP, employ 40% of the country's enormous workforce, and generate almost 50% of its exports.

However, a quick back-of-the envelope calculation will reveal that there’s a large number of companies who are eligible to access the debt market. India has almost 30,000-odd companies of which about 16,000-17,000 companies earn an annual revenue of Rs. 100 crores. Within this set, less than 200 companies access the formal debt markets. This forms approximately $500 billion of India’s corporate bond market. But if we consider the rest of the companies, they have a negligible share in bond markets. This is the mid-market enterprises space that has a significant demand for credit. And this huge market needs to be addressed.

And yet, despite the sector remaining a priority for the Indian government with a host of policies geared towards accelerating its growth, the country’s mid-market enterprises segment continues to face a slew of challenges, with the primary challenge being a disproportionately low access to credit and financing.


This in turn hinders MSMEs’ ability to scale as well as leverage growth and expansion opportunities – a problem that tech-enabled companies like Vivriti Capital is solving by delivering access to credit to mid-market enterprises to enable them to grow, acquire assets, expand their product and service offerings, and have the necessary working capital to fulfil their business needs and tap growth opportunities.

Low access to credit
To be sure, the MSME sector has a compound annual growth rate (CAGR) of 11.2% but the massive credit gap they face continues to impact its potential. According to the ‘BLinC Invest MSME Lending Report 2022’ released by Mumbai-based venture capital (VC) firm BLinC, India’s 63.3 million MSMEs have a total credit demand of Rs 69.3 trillion and less than 15% of that demand is being met by the formal lending segment.

For example, traditional credit providers such as banks evaluate businesses based on their last audited financial statements and on the availability of collateral, rather than on a company’s cash flow availability and growth potential. And so, while mid-market enterprises do have access to financing through bank loans, it comes with its own challenges. For one, banks provide mostly working capital loans and demand excessive collateral obligations for term loans. This means that if a mid-market enterprise seeks to avail a term loan, it has to possess significant assets such as land, buildings, plant, machinery etc., to be used as collateral.

Only 4% of Indian corporate bond market has A plus rating and below. So, A+, AA-, BBB+, BBB, BBB-, and underrated companies form less than 4% of Indian corporate bond markets.

The MSME sector is also often considered high-risk by banks, who have difficulties in measuring the credit worthiness of these companies, especially mid-market enterprises due to the lack of publicly available information. Banks also consider the risk-profile assessment of these companies as critical to financing this sector as they view the sector as highly vulnerable to macroeconomic fluctuations.

It is also very challenging for mid-market enterprises to raise equity capital through the public market via initial public offerings, as compliance and disclosure burdens are very high and the seasonal nature of the business of many MSMEs make it very challenging for them to sustain long periods of profitability or demonstrate predictable revenue streams.

While debt capital is crucial, these companies need a different solution as most of them are not looking at raising capital via equity dilution, nor do they need to be listed. Instead, they need lenders to take a bet on their future cash flow and give them debt today that is tailor-made to their needs.

The government’s financial inclusion roadmap has seen success in the retail space. From banks to fintech apps – several solutions have come up to address the retail need via formal channels. But the number is completely skewed for the mid-market space. There are hardly any players who are identifying the needs of these companies and offering them structured debt solutions as per their requirement .

While banks do lend to mid-corporate, they provide working capital solutions. However, the need for finance is not limited to working capital loans alone. Term loans to finance long-term growth or supply chain finance are not met adequately. In several scenarios, collaterals like plant, land-bank or machinery are required. That might not be the right approach always.

For example, Vivriti Capital, India’s leading mid-market enterprises lender, provides its clients with customised debt solutions such as term loans, cash credit, working capital, supply chain finance, equipment leading finance, and project financing, among others.

Backed by astute data analytics teams and data science teams, who can correctly gauge the risk profile of customers in this sector, Vivriti offers a cross-section of financing solutions to meet diverse credit needs of mid-market enterprises. By leveraging data and technology, Vivriti Capital offers cutting-edge bespoke solutions to address the key sectoral issues of the MSME debt market gap across 40+ sectors.

Vivriti, the leading mid-market lender
As a marketplace for lenders, Vivriti also offer attractive terms to meet the long-term financing needs of the sector and harnesses new technologies to ensure faster turnaround times on underwriting. As a pioneer in deepening the under-penetrated market and building appetite toward mid-market enterprises, Vivriti manages a portfolio of $900+ million across 800 enterprises at a Group level.

Still, very few mid-market enterprises – i.e., less than 200 of the 20,000-odd mid-market enterprises – today have access to debt markets, be it mutual funds, insurance companies, pension funds, bank treasuries, or capital markets. This select group of 200 companies have issued more than $500 billion of corporate debt, making up a significant share of India’s corporate bond markets, while the majority of the mid-market enterprises form a negligible share of bond markets.

Founded and helmed by Vineet Sukumar, Vivriti Capital – which seeks to transform enterprise finance for the MSME sector in India – serves this very market of 15,000+ mid-market enterprises that have a significant demand for credit – much beyond what the traditional market is willing to serve them.