India is home to approximately 6.3 crore micro, small and medium enterprises (MSMEs), according to research platform IBEF. They form the backbone of the Indian economy, contributing about 30 percent to the GDP and having the second-largest workforce after agriculture. In fact, MSMEs contribute 48 percent to India’s exports, making them a major revenue generator for the country. 

However, this sector faces numerous challenges, one of the biggest being access to formal credit which has prevented this sector from realising its full potential. These cash-starved businesses struggle to invest in technology, upskill the workforce, enhance infrastructure, and more.

In a panel discussion titled ‘The future of small business lending’, industry leaders including – Ketan Patel, CEO of Mswipe; Gurjodhpal Singh, CEO, Tide IN; and Deena Jacob, Co-founder and CFO, Open Financial Technologies came together to discuss various trends prevailing in the small and medium businesses (SMBs) space at TechSparks 2021, YourStory’s annual flagship event.

Intent-based lending 

Ketan highlighted that the last few months have significantly accelerated digital adoption among SMBs due to restrictions imposed to curb COVID-19. Additionally, there has also been a change in the lender’s perspective.

“From eligibility-based lending, we are shifting to intent-based lending,” he said, emphasising that lenders now dig deeper into the needs of the SMBs rather than looking singularly at their balance sheets, income tax returns, etc.

Gurjodh highlighted that a lot of working capital gets locked in the supply chains, which completely went for a toss during the COVID-19 pandemic. He said that options like ‘Buy Now Pay Later’ are going to become more popular going forward as lenders have realised that “credit taps” need to open for SMBs to function better.

Role of fintechs

Apart from traditional banks, there are numerous other digital financial enablers including fintechs, NBFCs, etc. The panellists were of the view that fintechs have definitely evolved the lending and borrowing ecosystem.

“Fintechs have brought in a huge shift in the way lending happens,” said Deena. 

Gurjodh added that the fintech ecosystem must continue to expand with the entry of even more large players. 

Role of technology

Technology has now become an integral part of most enterprises. However, the panellists highlighted that technology should be leveraged to enhance lending and not let it become a decision-maker. 

“Technology is an amazing enabler, especially artificial intelligence and machine learning that help in understanding the business deeper,” explained Gurjodh. Ketan further added that technology and data analytics are extensions of the lending business, emphasising that “they are enablers but not decision-makers.” 

Gurjodh further added that MSMEs operate in very complex environments and technology can help lenders understand their situation better to make pragmatic decisions. “An MSME operating out of Bengaluru has very different circumstances as compared to one operating out of Odisha or Bhubaneshwar,” he added.

He also gave a tip to the lending community: “Do not look at yourself only as a lender. Partner with MSMEs and try to understand them as much as you can.”

Understanding the needs of SMBs

Concluding the discussion, Deena said that lenders can tap into the details of transactions carried out by small business owners in order to better understand their lending needs and make informed decisions. “We need to ask questions like where is the transaction going? Are the compliance and taxation in order?”

She said this will help in creating a bank of structured data (which is currently missing) and help address the needs of the sector better.

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