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Evolution of SME Lending
25 Jan

Evolution of SME Lending in India

Evolution of SME Lending

India has earned its position as one of the fastest-growing economies across the world. The country’s economic growth and stability have created an influx of foreign and domestic capital that has further strengthened its financial condition. Additionally, the government’s new initiatives that boosted investment in different sectors has further encouraged customers to shift to domestic brands over foreign products. At this stage, strengthening the backbone of the country, Small and Medium Enterprises (SME) through SME lending has become important. 

SMEs in India are mushrooming in various sectors across the country. Manufacturing, agriculture, service, construction, and other industries see a boom in profits in recent years. As per a study, SMEs in India are responsible for 40% of the total exports in the country. 37% of industrial output is also produced by these enterprises. To generate these numbers, the SMEs across the country employ 60 million people while creating 1.3 million jobs each year. As most of the Indian population lives in Tier 1 and Tier 2 cities, SMEs have started opening doors to the urban India of the future. 

Also Read: Best SME Lending Options On How To Implement Them

These SMEs are facing a huge financial gap, according to the IFC Report of 2018. Microfinance institutions are actively serving startups and other companies at the base of the pyramid. Banks are serving the corporates. In such cases, MSMEs have always had limited places to seek investment. 

The problems faced by such companies are: 

  • Lack of collateral or property to mortgage
  • No or insufficient credit history 
  • Lack of proper documentation 
  • Weak balance sheet 
  • Long disbursal period 
  • Long approval period 

Earlier, the MSMEs had no other choice but to work with low capital. Most of them relied on informal financing, which was very expensive. They also worked with supply chain financing that limited their bargaining power and vendor choice. These limitations generated the need for new techniques of financing. 

Also Read: How Do The Latest Moratorium Policies Impact EMI Repayment for SMEs?

Alternate finance companies started changing the dynamics of the lending market with the help of venture capital and technology. These companies have motivated the MSMEs in India to use technology for online sales and business payments. With the help of the online footprint of cash influx, fintech companies easily identify the credibility of the applicant’s company. This makes the process of clearing loan applications easy for fintech companies. 

In the Last Three Years…

The widespread use of smartphones has decreased the cost of data by 95% in the past 3 years. From small vegetable vendors to big companies, everyone is using social media platforms to make credit decisions. The attractive offers by different fintech companies and banks are opening new investment opportunities for entrepreneurs. Using the underwritings of digital payment data, fintech companies in India are allowing companies with low credit score or asset base to get the required funds on time. 

Today, Small and Medium Enterprises are actively choosing new fintech companies that provide modern repayment facilities according to the demand of the company. Indifi Technologies Pvt Ltd provides an option of customised payment for loan applicants. The applicants at these companies receive credit at a lower cost through an entirely transparent process. 

Also Read: Covid-19 Challenges Faced By MSME

Future of SME Lending 

By 2023, the Indian government is planning to boost the annual MSME lending disbursement to reach around INR 6 lakh crore. The new-age fintech companies will use future growth opportunities as criteria for sifting through the list of eligible borrowers. Today, the applications are processed, and the funds are disbursed in less than 3 working days at companies like Indifi. This is among the fastest rates of fund disbursal in India currently. 

With the growth of technology in the fintech industry, the dominance of banks as lenders will be threatened. It could be said that the banks will come forward to partner with leading fintech companies to provide better customised SME lending solutions for future borrowers. This will come as a relief for future applicants as the cost of acquisition will further go down.

Even today, lenders are partnering with fintech companies to improve the process of lending for MSMEs. By providing digital methods of lending, the MSME lenders are positively impacting the market by opening new doors of opportunity for companies that need capital for developing their services and products. In the future, digital lenders will instantly get access to the digitally verified data of their customers from fintech companies like Indifi. This information will include Income Tax, GST, equities, mutual funds, and other data that reduces the risk of fraud. Once the data is properly verified, the lenders could immediately disburse the amount based on the requirement of the applicant. This will reduce the time of fund disbursal.  

Also Read: An Overview Of MSME Registration In India: Process & Benefits Discussed

Overview of Fintech Industry 

The Financial Technology (Fintech) industry is majorly categorised as Consumer Lending, SME lending, and Online lending platforms. Indifi Technologies Pvt. Ltd. is one of the big fintech companies in India that has the resources to come up with their special parameters of checking the credibility of their applicants. By using advanced data analysis, their teams have worked on providing deep insights regarding the spending patterns of consumers. Based on this, Indifi checks the scope of the products and services of an MSME to decide if they can loan the required amount to the company or not. 

Even if an applicant’s credit score is low, Indifi checks the credibility of the applicant and their business through its advanced algorithm. This algorithm checks the bank history, trends of repayment, the reputation of the company in the market, desirability of the services or products, and similar factors. Once the loan is approved, the applicant has the flexibility of choosing a comfortable repayment method depending on their capacity. 

You can apply for SME loan today at Indifi. Just fill in your details and send your application. Their team will revert as soon as your application is processed.

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