SMEs and MSMEs are major drivers of the Indian economy, yet they are often overlooked. Statistics say that although SMEs and MSME contribute 38% of GDP in India, only 10% of small businesses have access to traditional credit. This sector lacks urgent liquidity injection. The traditional financial institutions have been unable to address this credit need of small businesses because they have difficulty meeting eligibility criteria, exhaustive paperwork, low scalability, and small loan ticket size.
Role of Fintech
Fintech has risen to the occasion to provide credit to SMEs and MSMEs through crowdfunding, personal loans for business, MSME loans, and other online lending tools.
They use cutting-edge technology, including alternative scoring, digital and virtual channels for acquisition and channelizing this sector’s financial needs.
Without the burden of bureaucracy, fintech companies can provide quick access to credit and are fully equipped to carry the associated risks. They contain various other competencies, including loans, retail banking, wealth management, and invoicing.
How does fintech collaborate with SMEs for loans?
Fintech offers three services to its customers:
- Mobile Technology: This helps in the ease of applying for new loans, making and receiving quick payments, getting an instant personal line of credit through apps, etc.
- Data Analysis: This helps calculate and identify the credibility and goodwill of small businesses and also assess the collateral available to take the loan.
- Artificial Intelligence: This helps in making the loan application process more accessible and easy with the ability to customize it as per the customer’s needs.
What are the key factors that have led to the success of fintech in helping SMEs with their financial needs?
The key factors are as follows:
- Technology & IT Infrastructure: This forms the backbone of the fintech ecosystem.
- Customer Loyalty: Fintech provides a seamless customer experience. It efficiently reduces the stress and friction of digital transactions to satisfy their customers and maintain their loyalty.
- Innovative use of Data, Big Data, and Analytics: This has a big role to play in the fintech revolution. Big data and analytics help bring about altered business models, drive operational cost efficiencies, and understand customer needs to offer customized solutions.
- Value Proposition: Fintech focuses on the customers’ pain areas and finds ways to address them, thereby creating a convenient and sustainable business platform that creates value.
- Funding Environment: One of the crucial reasons why fintech is widely accepted is its hassle-free process for making funds accessible when needed.
- Cost of Operations: Fintech companies enjoy a cost advantage through reduced customer servicing cost, reduced customer acquisition cost, reduced distribution costs, etc. This advantage is passed on to customers as a benefit (for example, a low-interest rate on loans).
How fintech companies ensure that the credit needs of SMEs are conveniently met?
- Easy to meet eligibility criteria
- Immediate disbursal of loans
- Attractive interest rate on loans
- Easy loan application and disbursal processes
- Low transaction and processing fees
Fintech has redefined banking through its innovative digital services and customized products. Some of fintech’s services for business owners include: check account balance, make payments, apply for loans, update account information, and manage money through apps on mobile and desktops.
Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters, and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at email@example.com.
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