MSMEs in India do not have any shortage of export orders but are unable to move forward as financing options have not kept up with the changes in a disruptive global market.
Last November, Pankaj Prakash Sharma decided to take his organic baby food brand Happa Foods global, encouraged by the rising demand for organic food and the make-in-India initiative. Today, rising costs have severely aff his export numbers.
The Mumbai-based food manufacturer says increasing costs of inputs, shipping as well as trade transit time has made capital significantly expensive. To add to that, Sharma says it has become a major pain to get credit from banks to offset the rising costs.
“Due to the ongoing conflicts around the Mediterranean, no one wants to ship goods through the Red Sea. This has increased shipping costs and the time to move cargo has also gone up. In fact, the transit time has doubled. So, insurance costs have also gone up,” he says, explaining the snafu that has hit Happa Foods and other small businesses.
This problem gets worse as lenders are acting as if it is business as usual. Though the cost of doing business has risen considerably in today’s environment, Sharma says banks are not taking these factors into consideration when it comes to lending.
The entrepreneur is among the many exporters who are facing a credit crunch. According to estimates, India’s export credit has dropped by 5% over two years (March 2022 to March 2024), with priority sector lending for exports falling by 41%. According to the Federation of Indian Export Organisations (FIEO), the export credit outstanding value has dropped to Rs 2,17,406 crore in the March 2024 quarter from Rs 2,27,452 crore in the corresponding quarter of the previous year.
Exporters blame the declining credit on banks that have not updated their lending practices and policies to suit the current climate of high costs. They say there needs to be a change in mindset of lenders when it comes to product offering and foreign collaboration to solve this issue.
“Despite our growth potential, limited access to affordable credit is hindering our progress. The credit crunch has impacted our ability to scale up exports multifold,” says Sharma.