As India stands at the threshold of a digital revolution, MSMEs gain newfound importance

Gunja Kapoor 30th November 2017

Micro, Small and Medium Enterprises will eventually be formalised

On multiple occasions, Micro, Small and Medium Enterprises (MSMEs) have been denied access to financial services on account of multiple factors including insufficient documentation, the absence of unencumbered collaterals and credit history. Moreover, their small ticket size instantly makes these customers unattractive to the large formal financial institutions. Expansion in the e-commerce sector has been a recent driver in the growth of MSME market in India. There are 51 million MSMEs in India, of which only 32 percent are digitally engaged.

Role of FinTech firms

This gap was immediately identified by financial technology (FinTech) companies. These companies have taken up the role of not just lenders, but business solution providers, through innovative products and solutions. Alternate credit scoring methodology and advanced data analytics have supplanted the tedious documentation requirements, solicited by banks in the same regard. This also helps FinTech companies provide services to their customers in a turnaround time to the tune of as less as 48 hours, making credit, “timely” available.

As banks undergo a restructuring of balance sheets, MSMEs have been receptive to borrowing from FinTech firms, being a part of the digital universe. However, FinTech is not the only reason why MSMEs have stepped into the digital space. Rapid migration of customers to digital platforms has also acquiesced MSMEs to adopt digital ways of doing business. It must be noted that only 2 percent of MSMEs are actively engaged in selling/promoting their...

Note: Views expressed in this blog are those of the author.