financing products to obviate the problem of delayed payments of msme. the mechanism may prove complementary to the treds platform and would further alleviate the problem of delayed payments. v. way forward 20. as the msme sector holds immense potential, the need is to have a right set of policies and enabling framework which guide and support msmes to effectively handle their existing problems and venture into new areas. while both the government and the rbi have introduced a plethora of measures for improving access to finance and to promote growth of the sector, the small size of individual units and informal nature of the sector continue to pose challenges. 21. the traditional bank lending system by banks is based on financial statements and collateral of the borrower. with increased availability of data from several sources, including gstn, income tax, credit bureaus, etc., it is now possible to appraise the msme loan proposals expeditiously by doing due diligence online. further, with the help of account aggregators ( aa ), lenders will have access to potential borrower ’ s financial information at a single point, of course, with his / her consent. furthermore, emergence of fintech companies has made it possible to assess credit worthiness of msmes by utilising unexplored data sources such as digital transaction trails, data generated through e - commerce sites, etc. some lenders are collaborating with fintech companies to take advantage of such surrogate data for speedier credit underwriting for extending loans to msme sector. these new architectures would expand the reach of credit. 22. while the new models are beneficial for those units which are digitally active, a large segment of msme units access credit through traditional lending models. while micro enterprises act as a starting stage of entrepreneurship that requires low investment in technology, units graduating to small and medium enterprises have to enhance their technical capacity and explore newer markets in order to stay competitive for sustainable growth. recent policy efforts will provide an enabling environment and facilitate the msme sector seize the new emerging opportunities. i must add that as a regulator, we in rbi have to safeguard financial stability while ensuring wider access to finance. banks and other players on their part have to ensure prudent lending. 23. besides, we in rbi have started launching cohorts under the regulatory sandbox. first such cohort was launched in november 2019 with the theme of ‘ retail payments ’ to spur innovation in digital payments space to design and

shaktikanta das : micro, small and medium enterprises - challenges and way forward speech by mr shaktikanta das, governor of the reserve bank of india, at the 15th assocham ( associated chambers of commerce and industry of india ) annual banking summit, mumbai, 6 march 2020. * * * at the outset, i wish to thank assocham for inviting me to their 15th annual banking summit. more so because this is assocham ’ s centenary year. it is a remarkable accomplishment and i extend warm greetings to all those associated with assocham. over the years, assocham has transformed itself into a forceful, proactive, forward - looking organisation to meet the aspirations of indian business. i am certain that assocham ’ s journey towards excellence will continue. 2. in a country like india with a population size of about 1. 3 billion, the micro, small and medium enterprises ( msme ) sector has a vital role in the economy. it fosters entrepreneurship and generates large employment opportunities. as msmes absorb the surplus agricultural labour, they help reduce the problem of disguised unemployment in rural areas. msmes are also complementary to large industries as ancillary units and also play an important role in the whole eco - system of the secondary and tertiary sector. 3. we all are aware that the msme sector is passing through a challenging phase. the theme of today ’ s summit - ‘ structural reforms in msme funding ’ - chosen by assocham, therefore, could not be more apt and timely. in my address today, i would begin by underlining the importance of the msmes to the economy. i would then delve into some challenges faced by them and discuss some of the measures undertaken by the reserve bank. i shall also list out some issues as a way forward. i. importance to the economy 4. let me begin by highlighting a few stylised facts on the contribution of msme sector in india. the msme sector contributes in a significant way to the growth of the indian economy with a vast network of about 6. 3 crore units and a share of around 30 per cent in nominal gdp in 2016 - 171. the share of the sector in total manufacturing output was even higher at 45 per cent2. taking cognisance of the wider set of benefits that the sector offers to the rest of the economy, the government has envisioned to increase its contribution to gdp to over 50 per cent in next few years