Changing Landscape of MSME Financing in India

MSME Loans

Micro, Small and Medium Enterprises are the major contributors to India's social and economic development. This sector has contributed significantly to the country's Gross Domestic Product (GDP). Not only do these MSMEs contribute about eight per cent to the national GDP, but also provide employment opportunities for many. Although MSMEs play such a crucial role in advancing the country’s economy, they remain underserved. One of the biggest hurdles for them has been acquiring financing when required. There are many reasons for the same, such as insufficient operating funds, financial illiteracy, and small ticket size of loans, amongst many others.

With the onset of the pandemic, many businesses have turned to digital platforms. Digitization has helped businesses sustain during the unannounced wave of the COVID-19 pandemic. This, in turn, has opened up doors for these small businesses, and they have now gained traction. Non-Banking Financial Companies and Fintech companies are making their way into the financial services industry and are now becoming a convenient option for underserved MSMEs. Several new entrants into the online lending platform sector are delivering revolutionary financial products to MSMEs. These NBFCs have cleared the way for MSMEs to access efficient and customized lending offerings. The impact of these companies' expertise in lending procedures can be measured in a variety of practical ways. These include short-term online loan availability, quick loan disbursement, cheap interest rates, simplicity of obtaining small-ticket loans, and low transaction costs.

When compared to its global counterparts, NBFC financing in India is in its initial stages and is predicted to have rapid growth. MSMEs are active start-up ecosystems that are constantly in need of credit, while banks are unable to meet this growing demand due to factors such as the high cost of transactions and outdated business models. The need of the hour is to innovate products for the mass market and address challenges such as a lack of financial and digital literacy, as well as restrictive policy measures.

Role of NBFCs in Digital Lending
The conventional lending model has shortcomings in MSMEs' access to credit because small business owners rarely have collateral against which to borrow. Banks have experienced the issue of conducting a comprehensive risk assessment when lending to SMEs, thus they have stuck with their long tail procedure of a lengthy risk assessment cycle, making the structure difficult and time-consuming.

Growing NBFCs and Fintech firms are aware of the traditional system's limitations. They sought MSME financing for two primary reasons: managing day-to-day cash and addressing expansion demands. The development of mobile business management solutions is based on machine learning and cutting-edge artificial intelligence has made the process more convenient and efficient. Moreover, due to the pandemic many MSMEs have shifted to the digital platforms. To avail an MSME loan apply online and fill in the required details. MSMEs can also connect to apps and accounting software, allowing for effective identification verification, onboarding, and validation, as well as speedy access to loans. It also assures remote compliance with regulatory regulations, preventing criminals from benefiting. The procedure allows loans to be deployed within a few hours. Digital credit lending apps can improve the credit journey of a customer greatly as they can help transfer the loans swiftly, which helps customers go beyond geographical locations and credit-related limitations.
Since many NBFCs and FinTech’s incur such low costs when being compared to brick-and-mortar banks, the cost savings can be used for various reasons, like keeping up with the latest technology, reducing processing fees for customers, and promoting lower interest rates as well.

Enabling Financial Inclusion for MSMEs
Over the last few years, the importance of MSMEs has been widely recognized and the focus and encouragement for SMEs and have been growing. By adopting cutting-edge technology such as open application programming interface and artificial intelligence, NBFCs are now trying to customise consumer experience so that the loaning process can be seamless.

The NBFCs hold the potential to revolutionalise the country’s financial landscape by offering customers a wide range of products at relatively competitive rates. Having broadened their operations today, NBFCs companies have taken the services to the grassroots. In recent years, these financial companies have started gaining traction and are slowly managing to bridge the credit gap. With each small business owner having access to smartphones, digital payments have become a more convenient and hassle-free option for MSMEs to streamline their transactions. With digital lending platforms, MSME loan financing has become easier.

Apply for MSME Loan Online by registering online on the NBFC’s website even with just a smartphone. Availing of a loan from NBFCs is a simple and hassle-free process, unlike traditional banks. But by uploading all the documents required, businesses can receive their MSME loan financing within a couple of days.

Empowering Merchants Through Technology
It is important to foster an environment in which financial services and products are innovative; this will greatly benefit MSMEs. The government and the Reserve Bank of India have put in place plenty of enablers to make MSME financing more accessible in India. Payment bank licences, Aadhar, e-KYC, and e-signature are among the projects. All of this is intended to provide a favorable environment for the application, evaluation, and eventual enablement of digital lending as well as other traditional sources of credit to various sectors of the economy, including MSMEs.

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