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After three waves of the coronavirus pandemic, small enterprises in smaller cities are borrowing as before, but not so much in metropolises. According to a survey by digital lender NeoGrowth Credit, loan demand from micro, small and medium enterprises (MSMEs) was back to 99% of pre-pandemic levels in non-metro cities by March 2022 but just 81% in metros.

Bengaluru and Chennai were the only exceptions among metro cities, witnessing loan demand at 124% and 102% of pre-covid levels.

The survey was conducted over two years, from March 2020 to March 2022, with NeoGrowth’s MSME customers as its sample. A total of 16,087 MSMEs were surveyed in March 2020 and 20,868 in March 2022 across more than 25 cities and 88 sectors.

The study measured credit demand as the number of eligible inquiries for loans received by NeoGrowth from its MSME customers, and it may not necessarily reflect trends in ticket size of loans sought. The survey showed how these enterprises navigated the pandemic and the trends in business disruptions during this period.

Across India, credit demand revival has not progressed much since the Omicron wave of the pandemic early this year. The infrastructure sector led the way in recovery, with credit demand at 114% of the early 2020 level, followed by fast-moving consumer goods and retail, with 103%. Credit demand is yet to recover in other sectors, the survey found.

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Small businesses, particularly contact-intensive enterprises, were impacted more than large corporations when the pandemic struck two years ago. However, the survey found that MSMEs have largely been able to emerge from the crisis by adopting digital tools and using the financial assistance given to them.

NeoGrowth said in Pune and Mumbai, close to half of its small business customers availed of a financial incentive programme that it set up, indicating a greater impact of the pandemic.

The two cities had consistently reported the highest number of covid cases in the first two waves. The lender’s support was used heavily by the spa and salon sector, where 59% of businesses opted for it, followed by fashion and lifestyle (55%) and food and beverages (54%).

The central government’s Emergency Credit Line Guarantee Scheme (ECLGS), introduced in March 2020, also extended additional loans to small enterprises, reaching cumulative additional credit of 2.36 trillion as of February 2022. A survey of 756 MSMEs by TransUnion CIBIL also found 41% of respondents had used the extra funds to restart operations, and 40% used it to clear vendor dues. About 68% of survey respondents said they felt “positive“ about their business after availing of ECLGS.

As many as 72% of the MSME customers surveyed by NeoGrowth have experienced growth in business since March 2020, and 29% have expanded.

Indicating upbeat sentiment, 95% even expressed interest in expanding their business further. This shows a remarkable recovery since the early days of the pandemic when 60% of the sample did not have enough liquidity to last more than three months, only half were comfortable repaying existing debt, and 97% were anxious about their credit scores, the survey found.

“With timely support and guidance, MSMEs have been able to come out of the pandemic with renewed strength and tools," the report said. “While overall MSMEs are recovering, certain industries will continue to need extra support as we go back to complete normalcy. The last two years have also acted as a reminder of the areas where MSMEs still need hand-holding."

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