We have today a MSME Act, where they are entitled to several benefits. It is also required to disclose in company accounts about timely payment to MSMEs.
But in practice, they are the most suffered lot. Rate of interest charged by Banks to MSMEs is usually higher than other borrowers. Even that is hard to come by. In general, MSMEs are not professionally equipped to present the cohesive reports needed by Banks. Moreover, the large corporate sector pay a lip service to the clause of timely payment to this sector. Being dependent upon the business from large business houses, they have no options other than keeping mum.
This anomaly can be solved to a large extent, if the bill discounting is made popular. This requires large corporates honoring their commitments. The banks should consider the outstanding liabilities as debt, while calculating debt-equity ratio as this is also a finance raised by the entity through delayed payment to suppliers.
If MSMEs can get their bills discounted, their working capital needs will be met. This will also banks to better manage their advances as they have committed receivables in their hand and will not have to depend upon the stock and book-debt statements submitted by the borrowers.
This will help better discipline in the business payments and improve the economy as whole.
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