Fintechs helping Indian MSMEs overcome lack of data challenge

Lack of data is the largest difficulty facing Indian MSMEs, and fintechs are assisting them with it.

In India, there are more than 6.3 crore micro, small, and medium-sized businesses (MSMEs), and the majority of them have a significant issue with access to financing. The financial inclusion of Indian MSMEs has been mainly limited, whether it is in terms of investment options or lending facilities.

Khatabook's head of product, Gaurav Shahlot, recently stated that Indian MSMEs have difficulty obtaining loans because they require small sums of money for a brief period of time. “They also needed very, very frequently, whether it's for purchasing an inventory or financing an invoice,” he added.

The majority of Indian MSMEs have a revenue of less than 40 lakhs, which is also the segment that is exempt from paying Goods and Services Tax, according to Vipul Sharma, founder and CEO of Chqbook (GST). Access to financing is undoubtedly difficult, he continued, noting that just about 2 percent of the six million MSMEs in the country had gotten a loan.

Despite MSME being a priority lending sector for the Reserve Bank of India (RBI), the absence of information on these small enterprises hasn't helped. However, digital companies and fintechs are preparing to lend to small firms, who have been excluded from the financial system for too long.

Shahlot pointed out that the involvement of technology has produced a number of touchpoints for MSMEs, making loan underwriting simpler. He pointed out that it has also given rise to many different types of credit lines, including the distributor-to-retailer model, in which retailers receive financing as a result of sales, the buy-now-pay-later solutions, in which lenders provide financing by paying suppliers directly, and many others.

Fintechs have developed alternative methods for disbursing these loans and credit lines despite sharing many of the same difficulties as traditional lenders.