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Future-Ready Firms Turn to Tier 2 and Tier 3 Cities for Growth

20 Nov, 2019
Future-Ready Firms Turn to Tier 2 and Tier 3 Cities for Growth

Even as India’s Tier 1 cities grow rapidly, economic opportunities in these urban centers are reaching saturation. The next frontier lies in Tier 2 and Tier 3 cities, which hold immense potential for businesses looking to make a lasting impact. These underexplored regions are not the end of development but a chance to expand the economic landscape further.

With 563 million internet users and a growing demand for services, businesses in retail, IT, and housing finance have already begun capturing these untapped markets. Here's how MSMEs (Micro, Small, and Medium Enterprises) are driving the shift toward these cities and why it’s a win-win for businesses and the economy.

Why MSMEs Are Focusing on Tier 2 and Tier 3 Cities

1. Lower Costs

Setting up operations in smaller cities is more cost-effective than in metros:

  • Land and rental costs are significantly lower.

  • The investment needed to launch or scale operations is more manageable, making it attractive for MSMEs.

2. Availability of Talent

The trend of migration from smaller towns to metros for education and jobs is reversing:

  • Improved connectivity and opportunities have encouraged millennials to return to their hometowns.

  • Businesses can tap into a skilled talent pool at competitive salary levels.

3. Expanding Customer Base

MSMEs can address geographically agnostic problems by entering these markets:

  • Expanding into Tier 2 and Tier 3 cities helps businesses understand customer needs, establish networks, and tailor products for these regions.

The Role of Loans in MSME Growth

MSMEs contribute 25% to India’s GDP, create employment opportunities, and foster regional development. However, they require financial backing to sustain and scale operations.

The Funding Gap

Banks meet only 40-70% of MSME financial needs, leaving a substantial funding gap of $55 billion.

The NBFC Solution

Non-banking financial companies (NBFCs) play a pivotal role in bridging this gap:

  • Tailored loans with flexible terms and repayment options.

  • Personalized financial solutions to serve underserved markets.

  • Ensuring consistent credit flow to boost economic growth.

Capri Global: A Pioneer in Tier 2 and Tier 3 Markets

As a leading NBFC, Capri Global Capital is spearheading growth in smaller cities with a strategic focus on MSMEs and home loans:

  • Target Lending: Aims to lend over ₹7,000 crore to fuel development in these markets.

  • Branch Network Expansion: Plans to grow its footprint from 84 to 232 branches in the next five years.

  • Proven Growth: Despite the 2018 liquidity crisis, Capri Global achieved a 45% growth rate and continues to capitalize on emerging opportunities.

Rajesh Sharma, Managing Director of Capri Global, emphasizes the importance of understanding regional differences to succeed in these markets. This localized approach ensures the company remains agile and responsive to the unique needs of Tier 2 and Tier 3 cities.

Conclusion

India’s path to becoming a developed nation hinges on inclusive growth that extends beyond its metros. By addressing the needs of smaller cities, MSMEs and NBFCs like Capri Global are driving economic transformation and ensuring progress reaches every corner of the country.

For businesses looking to future-proof their strategies, Tier 2 and Tier 3 cities offer untapped potential, lower costs, and significant opportunities for long-term growth.