The digital footprint of micro and small enterprises (MSEs) expanded amid the pandemic-led disruption last year, with micro enterprises exhibiting stronger traction, a CRISIL survey shows.

The survey of ~540 MSEs, conducted earlier this year, was aimed at gauging changes in the level of usage of digital channels — including of online aggregators, social media platforms and owned websites — by such entities over the course of the pandemic. Of these enterprises, 59% were micro with revenue less than Rs 5 crore, while the remaining had revenue in the Rs 5-25 crore range.

The survey reveals that more than 65% of the respondent MSEs adopted/ upgraded their digital landscape. This benefitted them in the immediate-to-short run by helping manage transactions at a distance, deliver goods efficiently, and facilitate access to financial services, apart from bringing in tangible benefits such as enhanced customer acquisition, operational efficiency, workforce enhancement, risk management, innovation and reduction in manpower requirement.

Says Bhushan Parekh, Director, CRISIL, “Within the MSE universe, manufacturing sectors showed a stronger shift towards digitalization, with 71% respondents adopting/upgrading to the digital ecosystem compared with 66% respondents from the service sectors. The growing demand for digitalization in operation was visible across segments. The highest transformation was recorded on financial transactions with ~68% extensively adopting payment wallets and net banking, while a mere ~4% were focused on procurement/ inventory management. This shift has the potential to enhance opportunities to access credit by MSEs through using their digitized data on transactions and business activity.”

Covid-19 has also changed the way MSEs market/sell their products/services — today, about 52% of the respondent use social media to market their products.

These trends are encouraging as a well-integrated and connected digital ecosystem is optimal to build connections, and drive transformation of MSEs.

Increasing digitalization also augurs well from a financial inclusion perspective.

As things stand, access to formal credit has long been a challenge for MSEs due to absence of information such as historical cash flows, credit reporting systems, and credit track record of these enterprises. There is, thus, an urgent need to formalize the sector in order to boost formal credit flow to the MSEs. The government, on its part, has taken initiatives such as Udyam, OCEN, TReDs etc have been in place to address these issues.

The growing digital adoption among MSEs is expected to help here.

That being said, the survey shows that MSEs are hesitant to disclose/ share financial data online and this reluctance is impacting the overall traction.

Says Manasi Kulkarni, Associate Director, CRISIL, “The survey shows ~80% MSE respondents are not comfortable sharing their data for fear of data theft. This is despite the Reserve Bank of India’s assurance on privacy of financial data as it will be shared in encrypted form. In the context, fast-footing spreading of awareness and promotion of such initiatives become imperative for the government to ensure effective implementation.”