How Fintech Can Drive the Progress of the MSME Sector

As far as MSME go, lack of finance is one of the major causes of roadblocks. Equally valid is the fact that many entrepreneurs from this sector are either unable or unwilling to adapt to the changing financial scenario in which most financial processes are being automated, and financial products from loans to investment are being offered digitally. In fact, there exists a general aversion to the formal financial services provided by banks. While the reasons for this aversion are many, the main one is a general lack of awareness and understanding about banking and finance.

P2S seeks to lift the shroud that makes banking finance such a mystery.

How it Works

In light of the most recent MSME outreach program where the Indian Prime Minister made a promise of 59-minute loans to small businesses, it has become even more important to understand fintech and how it works.

Fintech offers three essential services to its customers:

  • Data Analytics –
    • To assess the creditworthiness of a business
    • To evaluate collateral available for loan
  • Mobile Technology –
  • To make and receive payments promptly
  • To make loan applications
  • Artificial Intelligence –
    • To make application processes smoother and faster
    • To customise products to suit consumer needs

Companies offering fintech are soon becoming the single window through which all the financial needs of MSMEs can be met. Some of the ways in which these companies service MSMEs include:

  • Instant short-term loans
  • Low interest rates
  • Simplified processes
  • Low transacting cost

According to an International Financial Corporation (IFC) report, there exists a funding deficit of more than two trillion dollars for small businesses, despite the initiatives taken by the government to offer loans and other financial support to the MSME sector. Fintech companies are stepping in to pick up the slack through a mutually beneficial relationship with MSMEs.

Approximately 75% of fintech enterprises have retail banking, loans, invoicing and wealth management as their core competencies. These companies are helping small business to gain quick access to finance and are ready to carry the risks associated with lending in this sector. Moreover, these companies do not carry the added burden of bureaucracy and related procedures.

Statistics show that most traditional institutions in the finance sector are feeling the need to transform and embrace fintech. The industry is witnessing an emerging alliance between traditional players and fintech.

Though some teething troubles are to be expected, industry leaders believe that India is poised for expansion of its financial sector. Banks are stepping up to meet the challenge, and there is room for the private sector, too, given the massive gap in funding MSMEs.

Next Steps

The importance of the MSME sector for the Indian economy coupled with the shortage of finance and funding in this sector is sufficient to drive the progress of the fintech industry.

There is, however, a need to educate the populous of the MSME sector in both financial and digital spaces. It is also necessary to create a general awareness of the options available and encourage entrepreneurs to adopt new technology.

As the government continues its efforts to support MSMEs through Digital India and other initiatives, it is with a happy heart that we foresee a digital, cashless and paperless India.

About the Author
Finansme | 34 Articles

We believe there is a need for easing the operating environment for the Micro, Small And Medium Enterprises sector. Access to finance, redefining investment limits, could transform MSMEs into a hotbed of entrepreneurial activity.