Unlocking MSME Growth Through Digital Finance

The session on "Financing MSMEs in the Digital Age" at the 6th Annual Conference—MSMEs in Viksit Bharat delved into the transformative power of digitalization in expanding financial access for Micro, Small, and Medium Enterprises (MSMEs). Experts from the banking, fintech, and policy sectors discussed how digital finance is bridging the financial inclusion gap, allowing MSMEs to access credit, manage transactions efficiently, and scale their businesses. A significant focus was on digital lending platforms, which are revolutionizing MSME financing by leveraging alternative credit scoring models that use transaction history, GST data, and AI-driven risk assessment. These platforms ensure faster loan approvals and disbursements, particularly benefiting small businesses that struggle with traditional collateral-based lending. The panel also emphasized the increasing adoption of mobile payment solutions, which have not only reduced cash dependency but also improved financial record-keeping, thereby enhancing creditworthiness for MSMEs. Discussions highlighted the role of digital banking services, which provide seamless financial operations, including online account management, instant digital invoicing, and integration with cloud-based accounting tools, allowing MSMEs to maintain organized financial data and improve efficiency. Government initiatives to promote digital financial inclusion, such as incentives for adopting UPI payments, digital literacy programs, and regulatory frameworks supporting fintech innovation, were also key discussion points. However, the panel acknowledged challenges such as cybersecurity threats, digital fraud, and low digital literacy in rural and semi-urban areas, which hinder widespread adoption. Experts suggested targeted financial education programs, enhanced cybersecurity frameworks, and AI-powered fraud detection tools as necessary solutions. The session concluded by reiterating that digital finance is not just about improving financial accessibility but also about empowering MSMEs to become globally competitive by leveraging technology for smarter financial management, efficient credit access, and seamless transactions. The transformative power of digital finance in expanding financial access for MSMEs was a central theme in this insightful panel discussion. The conversation underscored how digitalization is reshaping the financial landscape for small businesses, removing geographical barriers, streamlining bureaucratic processes, and fostering greater financial inclusion. Mr. Ravinder Bhan, Board Member, India SME Forum set the stage by stating, "I do not have to give you the oft-repeated joke that India has possibly turned out to be the most digitally advanced in terms of digital financing." This sentiment was echoed throughout the session, with examples of how digital transactions have become so ingrained in daily life that even street vendors now accept UPI payments seamlessly.

Mr. Vijay Shetty, Executive Vice President and Head of Commercial Banking at Axis Bank, emphasized the paradigm shift towards digital-first financial services, highlighting how digital banking has enabled real-time, paperless transactions. "We have a product where a customer can start a journey with a QR code, open a current account, and get a loan within three minutes," he explained, demonstrating the speed and efficiency of digital lending. He further elaborated on the power of AI-driven assessments in financial decision-making: "AI helps us detect fraud patterns and assess creditworthiness in real-time, making loan approvals faster and more reliable."

Shri Ateesh Kumar Singh, Joint Secretary-AFI, Ministry of MSME, provided a broader regulatory perspective, stressing that digital finance is not just an option but a necessity. "Only 12% of MSMEs in India are digitally mature. If we are to bridge the credit gap, digitalization must be at the forefront," he stated. He also introduced the Unified Lending Interface (ULI), describing it as "the UPI of lending"—a revolutionary protocol designed to enhance MSME access to credit by seamlessly integrating banks, NBFCs, and fintech platforms. He urged stakeholders to embrace innovations like the Finternet (Finance Internet) and Central Bank Digital Currency (CBDC), both of which are set to redefine digital finance.

Former SIDBI Deputy Managing Director, T.R. Bajalia, shared a historical perspective on MSME credit accessibility, reflecting on past inefficiencies: "In 2005, getting a small business loan took two to three months. Entrepreneurs lost enthusiasm in the process. Today, loans are approved instantly based on digital records." He also highlighted the growing significance of government-backed digital credit initiatives like PSB Loans in 59 Minutes, MUDRA, and SIDBI Digital Lending, all of which have played a crucial role in "shifting the focus from merely providing loans to ensuring they are timely, adequate, and affordable."

The discussion concluded with a powerful reminder that the digital revolution in finance is not just about efficiency but also about empowering businesses that were previously excluded from the formal financial system. As one speaker aptly put it, "We must ensure that every MSME, no matter how small, has access to digital financial tools that can fuel their growth and resilience in a competitive market."

For policymakers, financial institutions, and fintech innovators, the key takeaway is clear: Digital finance is the future, and MSMEs must be at the heart of this evolution. There is an urgent need for continued collaboration between government agencies, banks, and technology providers to expand access to digital financial tools, simplify credit processes, and ensure that every entrepreneur, regardless of their size or location, can harness the full potential of digital transformation. This shift is pivotal in achieving India's vision of Viksit Bharat, where MSMEs play a crucial role in driving economic growth through financial empowerment and technological integration.