In today’s hyperconnected world, where everything is digitised - from ordering clothes to groceries and loans - Fintech has come a long way in establishing itself as the precursor of the monetary space.
The formal financial system has underserved the SME sector that forms the crux of the Indian economy, and, as a result, only 3% of SMEs can avail loan through the traditional modes. SMEs, for long, have been facing this issue due to the lack of credit rating, sufficient collateral, lack of documentation, and more.
Moreover, the sales and profit margin of small businesses are highly vulnerable due to several factors like seasonality, labour cost, pending payments, natural disaster, unexpected expenses, and several other factors that result in uneven cash flow.
Since most of these small businesses lack sufficient documentation, getting the required monetary support becomes a challenging task. A report by the Ministry of Micro, Small, and Medium Enterprises revealed that about 51 million MSMEs are operating in India that contributes to around 45% of the manufacturing output in the economy. Additionally, research conducted by the International Finance Corporation (IFC) suggests that the current capital shortage in the MSME sector is approximately $2 trillion. The stark number not only validates that the MSME sector, by and large, has been credit deficit but also questions their very survival. This is precisely where Fintech emerges as the growth enabler of the MSME sector.
The advent of technology is slowly transforming the lending scenario, thanks to the rising number of fintech players with digital-centric solutions, altering the status quo of MSME lending.
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