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Digital Public Infrastructure: Bridging the MSME Finance Gap

By Eram Shaikh --
Tuesday, 10 Oct, 2023

The World Bank’s Policy Recommendation paper presented at the G20 2023 has shed light on the growing finance gap for SMEs with 41% of SMEs in emerging economies facing a finance shortage of USD 5 trillion which is estimated to be 1.3 times more than the credit supply.

In India, out of the USD 819 billion credit demand of MSMEs, USD 530 billion stands unattended, making only 14% out of the 64 million MSMEs recipient of credit resources.

Due to small ticket size loans, capital holding capability, incapability of MSMEs to produce collaterals and acceptable credit histories, traditional banking & financial institutions in India are typically hesitant to invest in and deal with MSMEs. The gap continues to increase as a result of regulatory compliances, client delays or nonpayment of credit, a lack of financial literacy, and the aftereffects of the current pandemic.

India Stack, the foundational DPI of India, has achieved 80% financial inclusion rate through government initiatives such as Digital India, Unified Payments Interface & Unified Payments Interface 2.0, Aadhaar Payments Bridge, Aadhaar Enabled Payment Services, that have created a conducive environment for financial technology growth resulting in,

-Digital Payments ease: DPI enables MSMEs to accept digital payments, building their creditworthiness by tracking financial transactions and maintaining credit histories by the modes of AADHAAR, eKYC & eSign.

-Enhancing Credit Access: Access to information and data from traditional sources makes assessing creditworthiness easier, providing better access to formal finance and in India, Open Credit Enablement Network (OCEN) has been imperative in providing collateral-free funds to small scale enterprises.

-Collateral Diversification: DPI allows for data exchange and digital payments as collateral, reducing barriers faced by MSMEs seeking financial support & the Account Aggregator architecture assists individuals and small enterprises in using data to expand credit availability.

Digital Public Infrastructure: Bridging the MSME Finance Gap. The World Bank’s Policy Recommendation paper presented at the G20 2023 has shed light on the growing finance gap for SMEs with 41% of SMEs in emerging economies facing a finance shortage of USD 5 trillion which is estimated to be 1.3 times more than the credit supply.

In India, out of the USD 819 billion credit demand of MSMEs, USD 530 billion stands unattended, making only 14% out of the 64 million MSMEs recipient of credit resources.

Due to small ticket size loans, capital holding capability, incapability of MSMEs to produce collaterals and acceptable credit histories, traditional banking & financial institutions in India are typically hesitant to invest in and deal with MSMEs. The gap continues to increase as a result of regulatory compliances, client delays or nonpayment of credit, a lack of financial literacy, and the aftereffects of the current pandemic.

India Stack, the foundational DPI of India, has achieved 80% financial inclusion rate through government initiatives such as Digital India, Unified Payments Interface & Unified Payments Interface 2.0, Aadhaar Payments Bridge, Aadhaar Enabled Payment Services, that have created a conducive environment for financial technology growth resulting in,

-Digital Payments ease: DPI enables MSMEs to accept digital payments, building their creditworthiness by tracking financial transactions and maintaining credit histories by the modes of AADHAAR, eKYC & eSign.

-Enhancing Credit Access: Access to information and data from traditional sources makes assessing creditworthiness easier, providing better access to formal finance and in India, Open Credit Enablement Network (OCEN) has been imperative in providing collateral-free funds to small scale enterprises.

-Collateral Diversification: DPI allows for data exchange and digital payments as collateral, reducing barriers faced by MSMEs seeking financial support & the Account Aggregator architecture assists individuals and small enterprises in using data to expand credit availability.