How Fintech Can Drive the Progress of the MSME Sector

Micro, small and medium enterprises (MSMEs) playing an important role in the Indian economy. As they have made a substantial contribution to the nation’s growth. And the statistics of more than 5 lakhs of employment generation in 2019, more than 48% of the total amount of export are visible evidence to it.

During the lockdown, Prime Minister Narendra Modi has shown us the importance of being self-reliant (Atma Nirbhar). Which has saved us from the possible economic slowdown. The major thrust given to this sector will help India to become a self-reliant nation to whom the other countries would lookup.

However, the pandemic had shaken the pillars of this sector and made them dependent on the finances of NBFCs and the banks. Hence getting the increased need for finances had made these institutes automate the loan disbursal process and provide the loans online.

In light of this development, it has become imperative to understand the importance of fintech. And how it is helping the MSME sector with MSME loan to come out of the pandemic and providing them with stability.

The arrival of fintech in the MSME sector

The advent of fintech started with the situation of demonetization when digital payment through Paytm wallets became very popular and the problem of change and black money came to an end.

It is during that time financial technology gained attention that led to the Unified Payment Interface (UPI). And since then, companies operating in the lending sector have started creating products in sync with the infrastructure.

The digital fire started taking traction when Reliance Jio embraced the digital revolution by becoming the major telecom provider by providing further support to the fintech aiding the MSME sector.

The increased penetration of the internet in both urban and semi-urban areas available at a cheaper rate opened doors for the MSME sector to do their business efficiently with their clients without any disruption.

What benefits will the fintech solution will provide to the MSME sector?

After the pandemic, MSME both old and new, have understood the importance of technology and open doors for digital payments, accounting, wallet, Saas, etc. Which has also brought pace in the working style of these MSMEs and also helped in the improvement of productivity.

Most importantly easy access to credit for business operation without much of a hassle has made fintech a popular choice for their financial needs and they do not have to depend upon the banks and unorganized money lenders to arrange funds for their business needs.

Through fintech, some of the problems that the MSME faced such as longer duration taken for loan processing, inappropriate loan size, fixed business loan tenures, complex documentations have been resolved.

Major offerings of the Fintech

There are three major offerings provided by the Fintech

  • Artificial intelligence: Artificial intelligence or AI has emerged as a prominent tool, making application processes smoother and faster as it is very easy to understand the behaviour and attitude of businessmen and check the capability of loan repayment. In some cases, as per the needs of the customer, it also helps in modifying the product
  • Hitech telecommunication: Mobile technology has become the most suitable channel to make the bill, initiate a transaction, and receive payments or for that matter application for various types of loan.
  • Data investigation and analytics: Data analytics help to assess the creditworthiness of a business or evaluate collateral available for a loan. Analytical software solutions such as PayU, Paytm, Razorpay have been adopted by MSME in full confidence and it will be increasing shortly.

Impact of Fintech Solution

The impact of digitalization on the MSME sector has led to operational improvements ranging from increased profitability, operational efficiency addition to higher customer engagement.

Companies in the fintech space have turned into one-stop shops catering to financial needs such as instant short-term loans, low-interest rates, hassle-free loan disbursal, and low processing cost.

The introduction of GST indirectly helped MSMEs to reach out to fintech startups offering tax-filing solutions. Besides fintech-based SaaS products are also sought after by MSMEs given the increased limit of tax exemption and flat tax rates.

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