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Access to Digital Lending: The boost required for growth of the MSME economy in India

According to industry experts, India is home to around 6.3 crore MSMEs, contributing over 29% to the country’s GDP through domestic and international trade. The sector has also created immense entrepreneurship and employment opportunities in India’s semi-urban and rural areas. While the industry has been growing at a rapid pace, one of the biggest factors that have been a setback for the MSME sector is the access to and shortage of timely formal credit. Unavailability of access to finance has been seen as one of the primary challenges in the growth of MSMEs in India. This can be attributed to market uncertainties, unavailability of formal lenders, lack of credit history of small businesses, lack of documents as well as lengthy offline processes like document verification for customers that often result in application dropouts. 

According to a recent report by the Association of Chartered Certified Accountants (ACCA), the Indian MSME sector faces a credit deficit of $240 billion. While this has stood as a barrier, the massive smartphone, and internet penetration in the remotest areas of the country has helped in implementing digital solutions for financial inclusion to the underserved semi-urban & rural population. 

Today’s new-age digital lending platforms are leveraging advanced technology and digital reach to help SMEs across demographic boundaries with a successful customer on-boarding process through timely credit accessibility, which can enable them to scale their business. These new-age platforms offer end-to-end lending services to MSMEs including loan servicing, cash flow management, record maintenance, etc., and enable a smooth & seamless experience for credit accessibility. Digital lending platforms are investing heavily to build a secure digital infrastructure with optimal omnichannel solutions to integrate completely paperless & API-driven processes like digital KYC, video KYC & digital signatures. These solutions help in lowering the time required to access loans, reducing operating costs, and enhancing transparency that further helps to build customer’s trust. 

Digital innovations and usage of analytical and predictive tools by digital lending platforms play a significant role in improving customer acquisition for MSMEs through faster credit risk assessment process and fraud detection by examining various, at times, unconventional data sources like PoS information, business transactions, utility bills, social media, & spending patterns. With the help of cutting-edge technology, digital lending platforms are redefining financial services and are designing a wide range of quality credit products and services that keep customers at the center of the eco-system. 

For Limited Time

Based on the evaluation of the MSME’s creditworthiness, digital lenders also extend risk-based pricing, wherein different interest rates and loan terms are customized for different consumers. Digitizing the entire lending process with the help of new-age technologies has provided a platform for financial inclusion of the underserved businesses, and has created a more viable and highly scalable model for MSMEs. 

With the way technology is revolutionizing the financial services industry, digital lending is here to stay. According to a research report (Omidyar & BCG, 2018), digital lending models are capable of delivering a cost advantage of around 30-40% over traditional models. Even if digital lenders have to bear with a higher cost of credit, the efficiency returns from leveraging technology can lessen the customer acquisition cost, operating expenditure, and the cost of collections. MSMEs form the backbone of India’s economy and serving their credit needs will ensure the holistic socio-economic development of our country.

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