Fintech Are Driving The Financial Inclusion For MSMEs
The Indian MSME sector has always been a key driver of economic growth in the country, as it contributes to nearly 30 percent of our GDP and is the second largest employer, providing over 110 million jobs to the domestic workforce. However, despite being such a significant contributor to the overall progress of the country, this sector continues to face many legacy challenges in terms of infrastructure, regulatory reforms and financial support. While the MSMEs might be able to take a few of these issues in their stride, the lack of financial inclusion remains a major deterrent for their growth. As per recent industry reports, the total MSME credit gap in India stands at $375 billion and nearly 95 percent of this addressable credit demand comes from micro and small enterprises. But however, only 14 percent of the total outstanding loan ($800 million)is with MSME sector indicating that this sector is grossly underserved.
The Fintech sector has the potential to bridge this credit gap and achieve financial inclusion in its true sense by taking the digital banking to the last mile. The widespread accessibility to internet and smartphones, adoption of the digital marketplace by businesses, and improving digital literacy of the masses has created a favourable environment for newage Fintech players to provide the financial impetus for the growth of MSMEs in India. So, what are Fintechs doing differently than traditional financial institutions? The answer is that Fintechs are leveraging technology to enhance their service and also help them make data backed smart decisions which are in the best interest of the business. Most of the traditional banks still have over emphasis on formal credit data and documentation, manual process heavy methodology and long wait period for loan disbursals. Moreover, these banks preferred working with larger companies seeking large ticket size loans and the MSME sectors requirements are different.
New age FinTechs deep dive into this consumer data and statistics for early fraud detection, credit monitoring, making underwriting safer, and timely repayment loans. These data triggers also help FinTechs to identify credit demand patterns and anticipate business needs
Adding to this, nearly half of the MSMEs(nearly 40 million) in India were either new to credit or have limited credit data. The fintech sector realized that technology can be smartly implemented to tackle these roadblocks which banks faced in serving the MSME sector. They used technology to digitize most of the processes right from submission of the paperwork to verification to quick disbursals of the loans, with minimal human intervention. They have also invested in state-of-the-art security measures to safeguard the sanctity of all data and information, which builds credibility and trust among the customers. In addition, these Fintechs can easily expand their digital operations to meet high volume demand and can be replicated across any remote geographies, ensuring the last mile accessibility. Another major implementation by Fintechs is the use of Big Data, AI, ML and more to create a repository of the customer data which helps in making informed business decisions, thus reducing the burden of delinquencies and also assisting in better understanding of the customers'financial traits.
New-age Fintechs deep dive into this consumer data and statistics for early fraud detection, credit monitoring, making underwriting safer, and timely repayment loans. These data triggers also help Fintechs to identify credit demand patterns and anticipate business needs, thus create customized solutions for the MSMEs. New age lenders also give loans to new to credit MSMEs and help them create a credit score/bureau report which will help them ahead, to facilitate larger loans. In fact, MSME finance companies are now moving beyond being facilitators of credit access and looking to curate a complete financial ecosystem that includes activities like lending, insurance, wealth generation, to name a few which are required as part of their growth journey.
So far, the Fintechs have been a great catalyst to push for financial inclusion as nearly 72 percent of the transactions in the MSME sector has moved to digital as compared to the 28 percent still in cash. India is bullish of becoming a five trillion economy and in order to achieve this goal it is imperative that we support the growth and development of the MSME sector. The government is already extending its support for the MSMEs through various schemes and policy reforms, while the burgeoning Neobanking segment in India, will provide the required financial impetus to the sector.
In addition to the infrastructure and regulatory framework, we need to provide data security and have a strong redressal system, to maintain the trust and credibility of the sector. We also need to provide financial literacy and growth incentives to make financial inclusion more efficient and accessible, in order to significantly support the MSMSE sector in India.