There are over 6.3 crore micro, small and medium enterprises (MSMEs) in India and most of them are f
Fintechs are helping Indian MSMEs with their biggest challenge – data and the lack of it
There are over 6.3 crore micro, small and medium enterprises (MSMEs) in India and most of them are facing one major problem — access to capital. Now, fintechs and digital businesses have been gearing up to lend to small businesses, who have been left out of the financial system for too long. The biggest challenge in the MSME lending has been the assessment of requirements. Some of these MSMEs operate on such a small scale that they have not been audited and sometimes it is even difficult to calculate their turnover.
Intervention of technology has created several touch points for MSMEs, making it easier to underwrite loans and has created a lot of different modes of credit lines such as distributor-to-retailer model where retailers are financed on the back of the purchases; Buy-Now-Pay-Later solutions where lenders are financing a purchase by directly paying the supplier and much more. Just like traditional lenders, even fintechs are facing similar challenges but have devised alternate ways to disburse these loans and credit lines.
Kishor Kharat, former MD and CEO of IDBI Bank and Indian Bank, said that the lenders also face certain challenges because the data and information, which is required for processing the credit lines or pretty facilities, is not easily available and it's not even authenticated. Because the operations of MSMEs are such small level operations, it becomes difficult for the lenders.
He noted that the biggest challenge in the MSME lending has been the assessment of requirements. Some of these MSMEs operate on such a small scale that they have not been audited and sometimes it is even difficult to calculate their turnover.
He added, UPI and QR-based payments have made the assessment of turnover and requirement somewhat easier, but a fully computerized operation would be a “dream situation” for assessment of these requirements.
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