For a country with such dependence on small businesses, it becomes even more important to ensure that the credit needs of such businesses are met easily and on an ongoing basis. The negative impact of COVID-19 on the sector has been intense and while the government announced various schemes like ECLGS for the support of MSME, still, there is an enormous gap in the credit supply to MSME.
India now has one of the world’s best payment policies, which was recently applauded by Bill Gates. It is now important to use similar strategies and policies not only for payments but also for lending. If there is one thing, which has increased in the last few years, it is the digital adoption by the businesses. There have been continuous changes in payments and regulatory ecosystem and from measures like GST, UPI to the recent introduction of a 24×7 RTGS payment system, the Indian MSME now have more digital footprints than ever. There was a time when an outstation cheque used to take over 10 days in the clearing. We have come a long way from that to 24*7 RTGS system.
The conventional distribution model of traditional lenders has always been slightly tilted towards the urban areas and focuses on larger ticket sizes. The solution to this gaping credit need of the MSME lies with the Fintechs and the new-age lenders. They can help the MSME by helping them fulfil their credit needs.
Some factors, which can help Fintechs in catering to the unserved needs of MSMEs, are:
- Distribution: With the rising use of smartphones and low data rates in India, going digital allows you to reach the mobile phone of a Business owner sitting in a rural/semi-urban area without depending on physical branches and avoiding high fixed costs.
- Underwriting: Less dependence on complexed financial documents by giving importance to alternate modes of assessing business strengths through analyzing GST payment, banking credits, etc.
- Quick: By using the digital mode of delivery, Fintechs can make it quick and convenient. The small business needs money to reach them quickly, as the needs are urgent and are for a short-term basis. The informal local private moneylenders recognize this and supply credit to MSME quickly but at very high rates.
- Simple: The Fintechs can make these processes much simpler and give this confidence to MSME borrowers. A lot of MSME opt for informal credit, as they are worried about the long and complex procedures of obtaining finance. While the large corporates have several employees and some of them can work on the requirements of lenders, the MSME usually have a lean structure and are afraid of wasting too much time in coordinating with lenders.
- Customization: The “one size fits all” approach is changing quickly. Whether it is the repayment mechanism (daily/weekly/monthly, etc) or the tenure, each customer wants to opt for it as per his convenience and the new-age lenders can help solve this problem by analyzing and offering products suited to the needs of MSME.
- New to credit customers: The NTC customers are avoided by traditional lenders, the new-age lenders must allow the NTC customers to enter the formal credit chain by giving short-term loans.
The Fintechs and new-age lenders are perfectly placed to contribute and help the economy grow. The growth of the Indian economy depends heavily on the MSME of our country and the health of MSME depends on bridging this Credit gap.
(The writer is National Head for SME – Unsecured Loans – Clix Capital)