The combined contribution of more than 51.1 million SMEs spread across India comes up to about 37% of India’s total manufacturing output. - Source: techstory.in
So, the contribution of the SME sector towards the growth of the Indian economy cannot be understated. But, despite this massive growth and large size, SMEs continue to suffer due to lack of funds and fail to cope with a fluctuating financial environment.
As a result, most SMEs turn towards costly and complicated financing that comes from the unorganized lending sector. But with the rise in FinTech, a lot of funding issues are being resolved for fast-growing SMEs. The industry is also eliminating geographical constraints by offering personal loans and credit cards online through mobile apps. Let’s take a look at the changing scenario.
How digital lending is changing the SME finance scenario in India
With the aim of altering the lending market for SMEs, FinTech firms are using technology to automate and accelerate the entire lending process from application and approval to verification and disbursal. With a one-stop solution for SME loans, personal loans and credit cards, companies can now access lending products round the clock.
Apart from being affordable and easy, the process is also made quick, completely paperless, secure, and totally transparent for SMEs seeking quick and easy cash for business growth. Feature-rich apps and online lending platforms such as Rupeeland, IndiaLends, MoneyTap, Lendbox, FTCash and Rubique are making personal loans handy and hassle-free for borrowers.
The share of different segments in retail credit
Efficiently addressing the financial needs of different segments of the Indian economy, the unsecured lending market is expanding much faster. Credit cards, personal loans, consumer durable loans and credit lines have emerged as the most popular and preferred credit products to meet the funding needs of shopping, traveling, weddings, home renovations, medical emergencies and more.
Growing by leaps and bounds, the unsecured lending industry has reached the compound annual growth rate of 20% today.
The shift from offline lending options to digital lending platforms
With the introduction of artificial intelligence and automation, tedious and time-consuming conventional lending options are being replaced by digital lending platforms that are convenient to use, have a faster turnaround time, an easy documentation process, instant verification and quick approval that prove to be a stitch-in-time for bootstrapped businesses.
Keeping consumer needs and convenience in mind, the credit industry is continuing to refine the entire loan application process with web interfaces, chat bots, and mobile apps that are efficiently catering to changed consumer preferences.
Non-banking finance companies have become the go-to lenders for young Indians who need lower ticker loans. With a market share of 49%, these companies are taking over the conventional lending institutions.
SMEs are the key growth drivers of NBFC’s share in the lending landscape with flexible products that are easy to avail and easier to repay. NBFC business models continue to evolve and innovate while the public sector banks continue to face the stress of mounting debt that is limiting their capacity to lend especially, to the SME sector.
Also, with the launch of the Digital India Initiative, through which the government intends to empower society, NBFCs are sure to get more millennial customers through digital lending products, further strengthening their foothold in the finance sector over the long-term.
Unsecured personal loans and credit cards are experiencing exponential growth
Given the increasing competition in the home and auto loan industry and low borrowing growth of the corporate sector, Indian banks are now rolling out unsecured personal loan products for credit growth. With the credit card portfolio rising by 37% year-on-year and personal loans by 36.5%; credit cards and personal loans combine to contribute 30% of the total outstanding debt.
While unsecured products are growing at a healthy pace, banks have their risk policies in place which is helping them maintain their book quality. There is nothing to worry in this sector because there is no danger of customers defaulting unless the growth rate in outstanding credit surpasses spends.
How SMEs are tapping the power of digital lending for growth
Small and medium enterprises are leveraging the powerful features and flexibility of digital lending. As small business loans and credit cards have become easy and accessible, SMEs can now focus their time, effort and resources on the business at hand. Digital lending has proven to be a boon for SMEs that earlier had to go through a complex application procedure, seemingly endless paperwork, and an arduous approval process for availing an SME loan.
With clever use of technology, it has become very easy for businesses to tap unconventional sources for borrowing money anytime, anywhere. Digital lending is revamping the way credit card and personal loan applications work, in a small but an effective way by ensuring that funds are available to the right customer at the right time.
The Way Forward
India is the second biggest market for smartphones and the pace at which the Indian customer is adopting technology as a way of life, digital lending has proven to be a game changer. This is why SME loans are also leaning towards online platforms that eliminate the need for human intervention while making disbursals faster and easier.
Since the digital bandwagon is successfully serving a big yet neglected segment of the market, it is here to stay and you will soon see all the banks and NBFCs embracing it to remove any geographical barriers and time constraints even for complex loan vehicles like unsecured personal loans and credit cards.
MoneyTap, India’s first app-based personal credit line which offers the power of a personal loan and credit card combine. One can avail their services via their website or instant loan app