OPIC partner YES Bank recognized for its support of small and medium enterprises
YES Bank, an OPIC partner and India’s fourth largest bank, was recently named Best bank in India for small and medium-sized enterprises by the global financial publication Asiamoney. The publication recognized YES Bank for pioneering key initiatives around women-owned enterprises, mentorship programs for small and medium enterprise, and use of technology. OPIC has provided financing to YES Bank to support lending to small businesses and women-owned enterprises and the bank has helped advance OPIC’s 2X Women’s Initiative to invest in the world’s women.
Here, Sumit Gupta, YES Bank Group President who heads rural banking and small and medium enterprises, explains the challenges SMEs face in India and the ways the YES Bank is supporting them.
Explain the role that SMEs play in the Indian economy and why financing these businesses is so important?
India is estimated to be home to more than 60 million micro, small and medium enterprises (MSMEs), which contribute to more than 45 percent of the country’s Industrial output as well as 40 percent of total exports. These MSMEs will continue to play a critical role in strengthening the national economy and therefore, adequate financing throughout their entire life cycle is imperative.
Are many of these SMEs women-owned businesses?
An estimated 20 percent of the MSMEs in the country are women-owned businesses. Many of these women-owned businesses are microenterprises and they operate across the country in urban and rural areas.
Why did YES Bank commit to serving SMEs and women-owned businesses and how have you gone about reaching them and delivering the financial services they need?
Despite the significant potential that the segment holds in driving India’s economic growth, both SMEs and women-owned businesses have historically faced challenges in getting access to timely and cost-efficient financing. Often they have limited financial documentation since they have been operating primarily in the informal economy. They may have limited expertise in financial planning and cash flow management, which may result in noncompliance of regulatory requirements.
In addition, women-owned enterprises suffer from cultural biases and may be considered higher risk than male-owned businesses. They may also have less education and work experience.
As a result of all these factors, many MSMEs end up relying heavily on private funds from family and friends. Most of these sources lack clarity and transparency and often carry very high implied rates of interest. Now with the implementation of GST (goods and services tax introduced in India in 2017), issues associated with documentation are being addressed to help banks design credit scores for the sector and extended cost-effective financing.
Describe some of the tools YES Bank has developed to support the sector.
We’ve created a focused strategy to ensure smoother flow of credit. For microenterprises, we have created parameterized lending program, which assesses creditworthiness with bank statements and does not require financials. For small and medium enterprises, we have built credit scorecard lending tool using statistical techniques to create a suitable lending framework. The Scorecards benefit MSMEs by improving access to credit and helps YES bank improve operational efficiency.
In addition, we have launched a program to facilitate bank loans to woman borrowers for setting up a green field enterprises.
Also, last July we launched YES GST to support mentoring to help more of India’s small enterprises become GST-enabled and to create mindshare for the bank. We launched this dedicated portal to share more information and guide MSMEs through the GST implementation process.