In most financial crises, it is the MSME sector that is usually the worst impacted. The current pandemic, being unique in nature – as it poses a potential threat to both human health and the economy – has impacted MSMEs harder than ever before.

According to a recent survey of 14,444 MSMEs, conducted in the second half of May 2020, nearly 50% of MSMEs have witnessed a 20-50% impact on their earnings due to the disruptions caused by the COVID-19 pandemic. The study, which focussed on the financial impact of the pandemic on MSMEs and their outlook towards the earnings, revealed that smaller-sized firms` earnings were more affected by the pandemic. Beyond lack of size, other factors that work against entrepreneurs in this segment are inadequate infrastructure, the informal nature of their business, insufficient access to finance, which comes at high costs, and inflexible labour laws. In more recent times, cheaper Chinese imports also added to the challenges that they had to work with. The impact of all these factors, except the last one, has compounded the plight of MSME since the beginning of the current crisis.

However, there are some clear learning’s that could protect MSMEs which survive this crisis, when they face the next one.

Some learnings from the crisis:

Having a footprint in the formal sector: The biggest irony of the situation is that although the Government has focused on MSMEs in itsrelief packages, the benefits are unable to reach the target audience. This is because the most-needy amongst this category are not registered anywhere, as they are just too small in size. They do not even reach the GST threshold, which exempts micro enterprises below a certain size. Being under the radar may be of some advantage to enterprises in good times, as it may preclude expenses and efforts related to maintaining accounts, paying taxes and adhering to many regulatory norms. However, it may become a handicap in bad times as it pre-empts the government’s ability to offer help. Lack of a formal sector presence also makes it difficult for financiers from the formal sector to reaching out with bail-out packages and mentorship, that could help tide over tough times.

Investing in technology and venturing into e-commerce: At first glance, this may seem like a tall order for smaller MSMEs as it appears to demand large capital commitments and keeping up with digital know-how, which may not be core to the enterprise. However, in more recent times, partnerships can be forged that enable smaller companies to outsource activities and lease access to digital infrastructureat variable costs, which may be more affordable. The current crisis demonstrated how e-commerce market places benefited and having a digital edge softened the blow of having to work remotely, even for small businesses.

Agility in business strategy: The current crisis has disrupted global supply chains and investment destinations are being reconsidered. This has unlocked numerous opportunities for enterprising businesses to consider new or evolved products, venture into new markets and approach investors, once the crisis abates. While there is no certain end in sight, the interim gives MSMEs some breathing space during which strategies can be revisited and reimagined, without losing out to competition while reinventing, as most competitors are likely to be on their back foot too.

Opportunity amidst a crisis

While there is no denying the compounded hardship that the crisis has meted out to MSME, it has also presented enterprises of all sizes and from all industries with an opportunity to step back, reimagine their businesses and reinvent themselves in preparation for the new normal that is emerging.