JUMPING THROUGH THE HOOPS

Research shows that around 85 per cent of MSMEs remain underserved in terms of credit and finance availability

Fintech start-ups are enabling MSMEs to access credit and finance using digital platforms

Informal sector MSMEs have to comply with too many regulations to avail credit from institutional lenders

Despite innovation in digital lending, most of the credit and finance is small in size and disbursed as unsecured loans

Although aided by digital analytics, disbursements and collections, the physical route is still preferred for largesized loans

a survey of 540 MSMEs upgraded their “digital landscape”. The report, based on the survey, goes on to explain how going digital benefitted the respondents in the “immediate-to-short run by helping them manage transactions at a distance, deliver goods efficiently and facilitate access to financial services, apart from bringing in tangible benefits such as enhanced customer acquisition, operational efficiency, workforce enhancement, risk management, innovation and reduction in manpower requirement”. Of the enterprises covered, 59 per cent had revenues of less than `5 crore; the rest had `5-25 crore. The report also points out that today, about 52 per cent of the respondents use social media to market their products. “A well-integrated and connected digital ecosystem is optimal to build connections and drive transformation of these enterprises. Increasing digitisation also augurs well from a financial inclusion perspective,” the report notes.

This could well be the next round of the SME 2.0 story. Shriram’s Chakravarti cites an IFC report which says that 85 per cent of MSMEs remain underserved in terms of credit, and only one-fifth of these gaps were fulfilled by formal credit. “As a consequence, the MSME lending sector in India faced a credit deficit of `16 lakh crore. Thus, there is enough demand for finance from small businesses and we see adequate opportunities for lenders. The challenge is in the form of rising interest rates and inflation, which might disturb their profit margins.” On the digital lending part, he acknowledges the role of fintech. “This has largely been restricted to relatively smaller ticket sizes and unsecured loans. Though we have incorporated digitisation into core MSME processes such as analytics, disbursements and collections, we continue to follow the physical route for matters related to collateral, since a bulk of our lending is secured against collateral,” he explains, adding that the objective is to digitise this over time.

Now, from a fintech point of view, the opportunity is simple. According to Harshvardhan Lunia, Founder & CEO of Lendingkart, a fintech lender, it has been working on digitising the lending process to enhance customer experience and make transactions easier during the loan journey. “We have gained experience in lending through providing credit access to more than 130,000 customers across the country with disbursements of around `10,000 crore and in the process have evaluated over 110,000 loan applications.”

Of course, getting all this right will also mean getting the other pieces together. FISME’s Patel thinks the younger generation is not keen on a career in SMEs and prefer corporate jobs. “If we pay `40,000 a month for a particular job, large companies will give them twice as much.” He also speaks of sourcing funds as being a hurdle, since lenders always ask for collateral. “Also, SMEs have to comply with too many regulations since not all of them are from the organised sector,” says Patel.

In the midst of all this, the process of transformation is fascinating; SMEs, too, are acutely aware that this could lead to a huge upside for them. With disruption being the name of the game, SMEs recognise the need to look at their own business differently and objectively. Google’s Puchalapalli speaks of the D2C model before emphasising how “businesses have an opportunity to build greater customer affinity than even their larger peers and own the end-to-end experience”. It is just one of the many opportunities staring at the SMEs in their face. Going digital is a natural progression for the SME 2.0 story. That said, the window it opens up to the world that lies outside is too big to miss. It is left to SMEs to make the most of it.

In the pages that follow, read about how SMEs are transforming themselves across sectors, and what more needs to be done. Happy reading!