Besides government reforms, technology and tech-enabled services can help MSMEs level playing field

With technology, financial institutions can reduce the cumbersome loan application and sanction processes of yesteryears

Thanks to India stack, there also has been a rapid growth of the digital payment ecosystem in India

The Covid-19 pandemic has not only triggered a global healthcare emergency, but it has also disrupted the world economy and posed a major threat to the survival of small businesses. In India, factors such as low demand due to job losses and pay cuts, liquidity crunch, disrupted supply chain, subsequent lockdowns, lack of funding & labor and a general sense of uncertainty, have adversely affected MSMEs.

Small businesses are also struggling under the burden of high taxation, loan repayments, and interest payments. Many companies are facing serious challenges to business continuity, while others have already collapsed under the crippling weight of the economic slowdown.

In this unprecedented crisis, the government, industry leaders, and other key stakeholders can play a critical role in helping MSMEs weather this crisis and revive small businesses. A slew of measures for MSME revival has been announced, such as INR 3 Lakh Cr collateral-free loans, backed by a government guarantee on both the principal and the interest, making it easier for otherwise risk-averse lending channels like banks to provide credit support to small businesses.

Besides government reforms, technology and tech-enabled services can help MSMEs level playing field by providing them with the resources and opportunities to adapt to the new normal. Let’s take a look at the numerous ways technology can help resuscitate small businesses in India.

How Can The Implementation Of Technology Help Drive MSME Growth In A Post-Covid World?

MSMEs are truly one of the worst-hit sectors by Covid-19. Small businesses, especially brick-and-mortar stores, are struggling to operate, due to the continuous pan-India lockdown and social distancing measures. In this scenario, these companies must embrace digital transformation and shift their business online. They must also integrate technology in all critical areas of function, such as inventory management, sales & marketing, accounting, customer service, and more, to optimise business performance, maximize efficiency and drive business growth.

But digital transformation requires significant investments. At a time when almost all small businesses are struggling with liquidity crunch, lending institutions like banks and NBFCs, policymakers, and other stakeholders can make a huge difference by adopting technology that can help businesses receive capital without the hassles of endless waiting.

With technology, financial institutions can reduce the cumbersome loan application and sanction processes of yesteryears, by digitizing the entire process. Innovative tech-enabled solutions can help automate risk assessment of small businesses, which will immensely speed up the lending processes.

Lenders can harness data to create comprehensive credit profiles for prospective borrowers and identify potential risks.  Solutions like AI and ML can help derive insights such as cash flow forecasts, loan repayment behavior, digital payment behavior, and so on for borrowers, especially those without a formal credit score.

Lenders also need to deploy advanced technologies like ML-based cash flow analysis, which can help them differentiate cash flows pre and post Covid, to assess the creditworthiness of MSMEs better. This will make the loan application and disbursal processes more efficient by drastically reducing the paperwork and red tape. It will protect the interests of lenders and reduce the rate of delinquency by providing easy access to credit for needy businesses while. This is especially helpful for MSMEs that struggle to access credit from formal lending channels.

Furthermore, it is heartening to see the efforts undertaken by the government, industry leaders, and other key stakeholders to support vulnerable MSMEs and give them a fighting chance by creating a technology-empowered entrepreneurial ecosystem. Initiatives like conducting video KYC, as approved by the RBI, has vastly helped lenders offer quick and easy remote onboarding services to small business owners.

A groundbreaking government initiative revolutionizing the Indian digital lending infrastructure is the India Stack. A part of the Digital India initiative, it can help lenders provide credit to borrowers, especially small businesses, through quick, hassle-free Aadhar-based authentications, by reducing the dependence on normally required financial documents like bank statements, tax returns, GST filings, credit history, and so on. India Stack has also pioneered the introduction of account aggregation that facilitates consent-based financial data collection and sharing among customers and financial service providers for easier and more secure customer due diligence.

Thanks to India Stack, there also has been a rapid growth of the digital payment ecosystem in India, with more and more businesses adopting digital payment solutions. Therefore, the time is ripe for lending channels to either invest in the digital transformation of small businesses or partner with the right fintech platforms to help MSMEs stay competitive.

Besides technological innovations that can improve the ease of doing business for MSMEs, in the near future, measures like more sovereign guarantee-based programs and liquidity boost to small and mid-sized NBFCs by the government can help investors provide last-mile funding to cash-starved MSMEs.

The MSME industry forms the backbone of our economy, generating employment for over 100 million people, contributing about 29% of India’s GDP, which is poised to reach 50% by 2025. Digital transformation, along with policy reforms, is the need of the hour to enable MSMEs recover from the economic crisis caused by the Covid pandemic, as well as unlock their potential and help them thrive by becoming more agile, efficient and resilient. Thus, technology presents a huge opportunity to drive MSME growth in India, and it has never been a better time to use it to the fullest to make our economy truly self-reliant.