Fintechs Empowering MSMEs: The Journey Towards Democratising Finance In India
Fintechs are playing an essential role in building the Indian economy. Here’s why! It won’t come as a surprise when we say that raising capital is one of the most challenging tasks for small and medium businesses in India. The last few years, including the pandemic period, are a reminder of the existing credit gap in the Indian MSME sector. While we witnessed an expected plunge in credit demand during these times, the MSME sector is on the route to recovery now. As per IFC reports for 2021, the total credit gap was INR 25.8 trillion, growing at 37% CAGR in the MSME segment. Owing to the growing fintechs in India, the industry has picked up in the last year recovering in economic and business activities.
The Credit Gap Faced By MSMEs
MSMEs form a critical part of the Indian economy, contributing to 45% of its industrial output and 40% of its total exports. Despite this, MSMEs often need help securing financial support, with banks and traditional financial institutions reluctant to offer them loans and other financing options. According to a recent study, only 7% of MSMEs in India have access to conventional credit, and a staggering 96% of MSMEs rely on informal sources of financing. This has resulted in a substantial funding gap for MSMEs, stifling their growth and hindering their ability to compete in the global market.
Closing the Credit Gap
The rise of fintechs in India is starting to change this, with these innovative financial technology firms working to democratise finance for MSMEs. Fintechs such as KredX are leveraging technology to make financial services accessible, affordable, and convenient to these businesses, helping to bridge the funding gap and create new growth opportunities.
How Tech Democratises Finance For MSMEs in India
One of the fundamental ways that fintechs democratise finance for MSMEs is by offering alternative lending options. KredX uses innovative algorithms and data analytics to assess the credit-worthiness of MSMEs, allowing them to offer loans and other financing options to businesses that traditional banks may have rejected. By using alternative methods to assess credit risk, fintechs can provide MSMEs with more favourable terms, helping to reduce borrowing costs and increasing access to funding. In fact, according to a report on Statista, the digital lending market is expected to reach a value of around 350 billion dollars by 2023.
The role of fintechs in democratising finance for MSMEs in India cannot be overstated. With their innovative and technology-driven approach, fintechs are helping construct a more level playing field for MSMEs in India and democratise finance in this growing economic sector. The growth of the fintechs industry and the increasing availability of alternative financing opportunities are promising signs for MSMEs in India. Evidently, the role of fintechs will continue to be crucial in democratising finance and unlocking new opportunities for growth and success for these businesses.
