Even as the micro, small and medium enterprise (MSME) sector continues to face challenges including the inability to get skilled manpower, infrastructure-related bottlenecks and difficulty in raising timely finance at economical rates, the government is keen on creating an enabling ecosystem for the under-served sector.
With the government beginning to take baby steps in ensuring that easy, quick and affordable capital and finance channels are available to them, lenders who have been supporting MSMEs say that digitisation and data driven decisions have been helping drive profitable lending and access to finance for MSMEs.
“The fintech lenders are providing MSMEs access to newer sources of credit, mostly at lower rates than earlier. Some of them have partnered with banks and NBFCs to lend to customers. The lenders have also upped the bar on customer experience in terms of process ease as well as turn-around-time involved in credit decisioning and disbursement,” said Amit Sachdev, co-founder and chief executive officer of CoinTribe Technologies.
Sachdev said that lenders are mining the existing data sources such as bank statements, credit bureau records to generate significantly rich insights as well as leveraging new data sources such as transaction data such as GST, trade data from supply chain linkages, e-commerce platform data, telecom data, social data, etc to enable richer and efficient risk assessment of MSMEs. “Since most of this data is available online, it is possible to mine this data, thus reducing human effort and operational cost,” he said.
Saurabh Jhalaria, Head, SME Lending, InCred said that digitisation has opened a world of opportunities. “The earlier models were too rigid and cumbersome for the MSMEs in the sense that it required tedious paperwork, collaterals and more. However, with the advent of new-age financial organisations, the entire ecosystem is evolving and new entrants are able to utilise alternate data sources like IndiaStack, GST, etc. to gauge the creditworthiness of MSMEs and disburse loans,” Jhalaria said, adding that by leveraging data sciences and AI, the companies are also able to minimise NPAs.
Citing insights from TransUnion CIBIL, Pravin P Daryani, chairman and managing director of A&A Group of Companies, said over 6.5 million businesses have taken loans from the banking sector for business. In addition, more than 15 million businesses have taken formal credit from the banking system in personal capacity.
“The market-sizing analysis indicates that commercial credit information already accounts for a very material portion of all lending in the MSME space today,” he said. “Banks are now treating SME lending as a digital priority. The reasons are clear: costs are high, and the opportunities to improve customer experience are significant. Furthermore, both traditional banks and fintech companies are offering compelling digital propositions in SME lending, featuring dramatically shorter approval and disbursement time — a key factor for customers when choosing a lender,” he added.
However, challenges are still aplenty. Sachdev pointed out that the constant back and forth on Aadhaar issue over the last few years has been a regressive step for the fintech lending ecosystem. “Now it is extremely important for stakeholders — UIDAI, Supreme Court, Ministry of Finance, Reserve Bank and others — to find a solution that will enable players to leverage Aadhaar to digitise various operational processes such as eKYC, eSign etc with due customer consent,” he added.
While the RBI launched initiatives to improve operational efficiency and customer experience, implementation remains patchy due to a lack of commitment from all stakeholders. Moreover, fintech lenders should also be allowed access to low cost sources of capital such as MUDRA, Sachdev observed.