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Sanjay Sharma

Sanjay Sharma is the founder of Aye Finance, a young organization driving innovation that delivers customer centered and affordable loans to small and micro enterprises, which had so far been locked out of the financial system in India.

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New-Age Lending Platforms - Solving the Problems of Lending to Indian MSMEs

The MSMEs are not able to explore their full potential and sometimes even have to shut shop entirely, from the lack of adequate financial help and timely liquidity.

Photo Credit : ShutterStock,

For India to emerge as a truly developed super-economy, the transformation of MSME sector would have to be a fundamental precondition. Indian MSMEs contribute 8% to the National GDP, 45% to the manufacturing output, 40% to the exports and provide employment opportunities which are second only to the agriculture sector. It is easy to see the connection between the national imperatives of financial inclusion and the development of these grass root businesses. Yet the problem of providing adequate and economical finance to these 50 million micro and small enterprises (MSMEs) that form bottom of the pyramid businesses, has so far eluded the financial industry.

The reasons are a plenty. Insufficient operating information of these enterprises, financial illiteracy of the small enterprise owners, and small ticket size of the loans have all resulted in the MSMES grappling with shortage of funds. The MSMEs are not able to explore their full potential and sometimes even have to shut shop entirely, from the lack of adequate financial help and timely liquidity.

But the last decade has seen the emergence of a new age non-banking finance companies (NBFCs) who are rising above these obstacles and devising innovative products and distribution strategies to meet the staggering Rs 5 trillion credit demand-supply deficit of MSMEs. Just like the advent of mobile and smartphones changed the face of communication, these new-age lending platforms endeavour to transform the financial landscape in India.

By adopting technology and deploying proprietary models for alternative credit assessment, these platforms are making lending more pervasive. This unconventional approach to credit assessment and distribution is finally bridging the last-mile connect with the MSMEs. The status quo has been disrupted by these fintech players. Their focus on extending financial inclusion to the MSME sector, is making the classical NBFCs and banks to sit up and take note.

Automation and machine intel is matched with human-intel to make processes more direct and far more automated, thus reducing operating costs and to enhancing customer service.

Another roadblock in traditionally lending to the MSMEs is the absence of CIBIL score. While Indian MSMEs are unbanked, undocumented or unorganized, banks depend on CIBIL score to ascertain credit worthiness and minimize risk in lending. To combat this obstacle, credit methodologies like psychometric evaluation, behavioural scoring, industry cluster analytics and supply chain references are being deployed to replace traditional methods of underwriting loans.

Here’s to the Changing Times


The new age NBFC are feeding off on the timely enablement of e-KYC, Adhaar, e-sign and unified payment interface and other digital payment platforms to further optimize their methods and improve their customer’s experience. It is heartening to see the policy makers and regulators working in sync with this trend to bring in inclusion, transparency and efficiency in the financial lending processes.

The online records of Registrar of Company (ROC), the digitization of land and property ownership records, the automated clearing house mandates for direct debit type bank account payment are all beginning to add momentum to this change.

Deserving MSMEs are finding access to funds no longer a challenge and they do not have to wait for days to get the approval of a Finance Company. Many of these MSMEs are themselves becoming early adopters of digital services like e-wallets, secure digital payments like Bhim and more. It may not be long before the real power of MSMEs is finally unleashed.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


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