CreditBook Technologies manages the CreditBook khata app, with almost one million active users. The khata users are predominantly Micro, Small & Medium Enterprises (MSMEs), who use the ledger to maintain financial transaction, which are largely cash-based. A digital ledger easily accessible on smartphones has allowed Micro-Enterprises to transition away from traditional manual bookkeeping practices, moving towards a digital medium that not just sends automated reminders for collections, but also streamlines the reconciliation process. The first step in digitizing Micro-Enterprises is through enabling transition from traditional bookkeeping practices to digital bookkeeping. Seamless integration of payments through the same can unlock productivity, and access to credit for MSMEs across the board.
Gross Transaction Value
MSMEs that are being considered as a sample for the CreditBook MSME Activity Index, on CreditBook’s khata recorded more than Rs. 63.5 billion of transactions on their respective ledgers in December 2023. The gross transaction value continues to increase over the last many months, as a mix of user growth, as well as higher average transaction value. Transactions spread over many businesses provides an opportunity to feel the pulse of the MSME market, which is often not possible due to the informal nature of such markets, and paucity of data.
CreditBook MSME Activity Index
In view of paucity of data available for MSMEs in Pakistan, CreditBook Technologies is launching the CreditBook MSME Activity Index, to track crowd-sourced transaction data of MSMEs recording transactions on the khata. The CreditBook MSME Activity Index is being launched to track activity of MSMEs operating in Pakistan and recording their transactions on the khata. CreditBook MSME Activity Index can act as a high frequency economic data point, which can be used for assessing transactional, and real activity in the MSME space. The data points can be utilized as a proxy to assess the health of the MSME segment. It can also be used by policy makers, academics, financial institutions, and other key stakeholders to drive policy decisions, and growth strategies for the MSME segment.
Almost one million active users record their transactions on their khata. However, among those active users are power users, which make up the sample of this index. We look at a sample of 35,000+ MSMEs that record their transactions on khata, and follow their activity, starting from January 2022. The Gross Transaction Value (sum of all transactions in Rupees) of the sample is then averaged out to estimate the Gross Transaction Value for each business monthly.
The average Gross Transaction Value is in nominal terms and is heavily influenced by inflation. To extract activity levels in real terms, the average Gross Transaction Value is adjusted for inflation by utilizing the monthly Wholesale Price Index as published by the Pakistan Bureau of Statistics. The real Gross Transaction Value is then indexed to 100, at a starting point of January 2022. The CreditBook MSME Activity Index is being presented in both nominal, and real terms initially to demonstrate the significant impact that compounded inflation has on transaction values, and business activity.
Evolution of the CreditBook MSME Activity Index since January 2022
The CreditBook MSME Activity Index (in nominal terms) has grown at an average of 4.2 percent per month, with seasonal spikes every few months. It is evident from data over the last twenty-four months, MSME transaction activity in nominal terms as represented by self-reported transactions recorded in real terms has grown by 104 percent. However, compounded wholesale price inflation since January 2022 has been 49.3 percent. Adjusting nominal values for the same, in real terms, MSME activity has grown by only 5.2 percent since January 2022. It may be noted here that MSME activity also exhibits strong seasonality, that keeps the CreditBook MSME Activity Index range-bound in real terms. Compounded MSME activity growth rates largely align with overall macroeconomic growth rates during the period. There also exists a high correlation between the monthly activity changes in the Quantum of Index for Large Scale Manufacturing, and the CreditBook MSME Activity Index.
The data set consists of transactions that are self-reported by a sample of 35,000+ MSMEs, that have been maintaining a ledger for more than twelve months, thereby ensuring consistency. It is difficult to validate the data through a formal payments mechanism due to the sheer size of the cash economy that largely drives the MSME segment. The data does provide strong signals regarding the sheer number of MSMEs, and their activity levels – which can be captured by the digital economy through financial inclusion, corporatization, and payments initiatives.