Fintechs help Indian SMEs with their biggest challenge: data and the lack of it


  • There are more than 6.3 crore micro, small and medium enterprises (MSMEs) in India, most of which are micro and small enterprises.
  • Majority of Indian MSME have turnover below ₹40 lakhs but cannot access any kind of loan, CHQbook CEO added.
  • The challenges in assessing the need is one of the main reasons why the Indian MSME is financially excluded.

There are more than 6.3 crore micro, small and medium enterprises (SMEs) in India and most of them face one major problem: access to capital. Whether through investment opportunities or credit facilities, Indian MSMEs are largely financially excluded.

Speaking to India, Gaurav Shahlot, head of product at Khatabook, noted that credit is a challenge for Indian SMEs as they require small amounts of capital for a short period of time. “They also needed very, very often, whether it was buying inventory or financing an invoice,” he added.

Vipul Sharma, founder and CEO of Chqbook, noted that most Indian SMEs have a turnover of less than ₹40 lakhs, which is also the segment that does not have to pay Goods and Services Tax (GST).

“That segment has outperformed… Access to credit is definitely a challenge,” he added, saying that less than two crore out of a total of six crore MSMEs have taken out a loan.

While the Reserve Bank of India (RBI) has made MSME a priority lending sector, the lack of data on these small businesses hasn’t helped. Still, fintechs and digital companies are gearing up to lend to small businesses that have been left out of the financial system for too long.

Shahlot noted that the intervention of technology has created several touchpoints for SMEs, making it easier to grant loans. He noted that it has also created many different lines of credit, such as the distributor-to-retailer model where retailers are funded based on the purchases; Buy-Now-Pay-Later solutions where lenders finance a purchase by paying the supplier directly and much more.

Like traditional lenders, even fintechs face similar challenges but have come up with alternative ways to disburse these loans and lines of credit.

But there must also be some shortcomings to this

“The lenders also face certain challenges because the data and information, necessary for processing the credit lines or nice facilities, is not readily available… It is not even authenticated. Because the operations [of these MSME] are such small operations that it becomes difficult for them? [lenders] also,” said Kishor Kharat, former MD and CEO of IDBI Bank and Indian Bank.

He noted that the biggest challenge in lending to MSMEs is assessing requirements. Some of these SMEs operate on such a small scale that they are not audited and sometimes it is even difficult to calculate their turnover.

UPI and QR-based payments have made assessing revenue and need somewhat easier, but a fully automated operation would be a “dream situation” for assessing these requirements, Kharat added.

While it’s all good, the impact of fintechs is still on the surface. Kharat noted that fintechs mainly serve the public in urban areas and that the SMEs in the rural regions have still not been able to reap the benefits of these companies. He believes that about 5-10% of SMEs must have benefited from the technological intervention.

Loans amounting to ₹3.32 trillion are sanctioned under the Emergency Credit Line Guarantee Scheme (ECLGS) until April 30, 2022. About ₹2.54 trillion was disbursed.

“Even though the Reserve Bank of India has determined this [MSMEs] among priority sector loans, banks find it difficult to lend to micro and small SMEs [which makes up for roughly 95% of the industry] while middle class people get more credit support,” Kharat noted.


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