Performance Tracking System (Mobile Bookkeeping)
Large Scale Problem
Micro entrepreneurs seldom keep books of accounts. Important figures like receivables, sales and expenses are stored mentally. However, human intuition has limitations. It fails when complex calculations are involved. Even the best of entrepreneurs are not aware of their daily income and profitability. Micro entrepreneurs struggle with cashflow management and cashflow projection since it involves complex calculations. They end up becoming victim of circumstances. High vulnerability shadows essentially in times of unforeseen expenditures and in times of delay in realization of revenue/ receivables. Negative cashflows not only affect business performance and family bonding, it also shatters the confidence of entrepreneur making one lose self-dignity/ self-respect. Entrepreneur then struggles to think big.
NBFCs and banks look history for lending. As a best practice, in cases where collateral is not there, financial institution projects revenue, profitability, working capital requirement and assets of business using three year history. This is key part of their appraisal process. In cases of unorganized micro enterprises, neither the business history exists in form of books of accounts nor does the credit history exists (as credit rating agencies and credit information companies have very limited reach in rural unorganized areas). Owing to this, micro enterprises fail to come into the radar of financial institutions.
This is the primary reason financial institutions resort to collateral. In case of poorest of poor/ daily wage labours where collateral is not present, money lenders fill the gap.
How the problem can be addressed
There is dire need of mechanism that can fix two issues –
Provide regular assessment to entrepreneurs about their income and profitability – and also facilitate cashflow projection/ management. So that they have full grip over cashflows. Entrepreneurs should not get surprises. They should be better prepared for cash crunches. If they project better, they should be able to arrange working capital in time to make optimal sales in high season. They should be able to keep cash at minimal in low season, thereby, optimizing interest expenses
b. Create business and credit history
Income Statement, Balance Sheet, Cashflow statement and Business Plan can be in a format (say, Credit Monitoring Arrangement format) which any financial institution can use to make lending decision. The financial statements can then be audited by local Chartered Accountant to facilitate easy lending decision by banker/ NBFC.
So, all in all, the solution lies in tracking performance of entrepreneur on regular basis
- At their doorstep
- In their dialect
- Format of books as per nature of business
And generation of audited reports that are comprehensible by
- entrepreneur to track income, profitability, assets and manage cashflow on regular basis
financial institution to study the credit history and business history