MSME Activity Index March 2024

Introduction

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.

Inflation Continues To Drive Higher Gross Transaction Value

For the month of March 2024, the Gross Transactional Value in nominal terms reached its highest in a sample of 27 months, as a function of increasing inflation, as well as Ramadan induced shopping. The CreditBook MSME Activity Index in nominal terms increased to 214.9 points. Adjusting for inflation, the CreditBook MSME Activity Index, increased to 101.2 points, remaining lower than its November 2023 high of 112 points.

Demand Destruction during Ramadan

March 2024 was a month defined by consumption associated with Ramadan, which pushed up overall nominal transaction to their highest ever levels in our sample. We also reviewed the Gross Transaction Value associated with ten days preceding the month of Ramadan, and the first ten days of the month of Ramadan.

There was an increase in spending by 4.9 percent during the ten days preceding the month of Ramadan on a year-on-year basis. Adjusting for inflation, this suggests a drop in volumes by 20 percent.

This effectively implies that volumetric sales on an aggregate basis continue to drop, suggesting demand destruction. Similarly, the drop-off in volumes reduced during the first ten days of Ramadan, as spending increased by 15.8 percent. For the first ten days of ramadan, adjusted for inflation, volumes dropped-off in an estimated range of 4.2 percent.

Limitation

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.