Ugro Capital – Opportunity To Invest in a Fintech-like Company Below Book Value

Another issue which haunts the MSME more than others is their inability to manage working capital and its financing for various reasons.
sharing a paragraph which i was reading for more details

“” * A similar issue is the use of working capital. Despite the increase in turnover, MSMEs still end up defaulting on their payment obligation. Why so? In the pursuit of growing their business, they often end up diverting the working capital to buy fixed assets without tying up long term funds. They fail to understand the importance of liquidity and this also hurts their credit rating. MSMEs, therefore, must be given some “Basic Financial Education” to make them understand the nuance of the finances.

• At the same time, RBI’s Asset Classification norms are applicable mutatis-mutandis across all segments i.e Large Corporates, Mid-Corporates, and MSMEs. However, it is unfair to expect the same kind of financial discipline from SMEs vis-a-vis Large/ Medium Corporates. It is a well-known fact that SMEs largely depend on their larger counterparts for sales of goods and timely realisations of their dues. Therefore, they generally end up providing credit period against their sales to these entities in the range of 60 to 120 days. On the other hand, they do not easily get the raw material on credit. Overall, the cash cycle for the MSMEs works out to be anything between 3 and 6 months. Therefore, they find it extremely difficult to manage their working capital requirement and thus end up delaying payment towards their commitments. “””
  its from open source and the writer is G.K Kansal

Head- Credit & Risks, Power2SME

Ugro has also been mentioning about rise in npa is there working capital loans if i am not wrong. if other can throw light on how this might affect the business in long term.
best
divyansh