Transforming The MSME Lending

Fintech is changing the way we bank. Not just retail customers, even MSME customers are reaping the benefits of the Fintech boom. 

Data, the game changer 

Since a long time, assessment of creditworthiness by formal credit underwriting models has been rendering many SME’s ineligible for availing loans. “This is where alternate underwriting techniques come in the picture. The digitised processes involve more effective use of data, stronger analytics, increased automation, and rules-based decision-making to assess both conventional and non-conventional data points,” said Alok Mittal, CEO and Co-founder, Indifi Technologies. 

For example, if I am working in restaurants as a segment, then for alternate underwriting techniques they will have data regarding how much are they selling through our channel platforms such as Swiggy, Zomato and so on. While these Artificial Intelligence, Machine Learning, and data analytics-powered alternate techniques use conventional data sources, they also take into account several different indicators that are not sourced by the formal institutions. “Because of the vast volumes of relevant data that such a model gathers and then assesses, alternate underwriting techniques are effectively catering to the previously underserved segments while facilitating better-informed decision-making for lenders,” said Mittal. 

The role of start-ups 

Traditionally, banks have been the go-to avenues for individuals and businesses to meet their financial needs. Why have banks not been able to address this space? 

Mittal explained that while banks have huge infrastructure, they also have strict regulations and low risk appetite along with a stringent credit underwriting process and disbursement process, which is highly regulated. This alienates them from a huge section of the underserved population with little to no formal financial history which is documented, and this is the need gap that start-ups are filling. The products offered by start-ups are also augmented by technologies. 

Healthy competition 

There exists a huge credit gap, especially when it comes to SME financing. Companies in this space have been striving to address the same through different products catering to the varying demands. “Therefore, emergence of more players will help ensure that credit problems of all kinds are being catered to by the digital lending space. Further, with new players emerging in the space every other day, it will become imperative for companies to innovate continually to stand apart. This will thus lead to several diversified product offerings coming in the market, while simultaneously providing a brooding ground for innovations. As a result, in spite of the competition in the market, the products and solutions launched will not compete against but complement one another,” said Mittal. 

Moreover, in near future, the role of digital lending companies may go beyond merely extending financial aid. These players might expand into further segments involving the making and implementation of finance-based business decisions and might play an instrumental role in those processes. 

Lastly, with the number of players increasing in the space, all driven towards the common goal of bridging the credit gap that exists, it may expedite the process of achieving true financial inclusion and economic development in India.