India’s GDP is set to grow at a fast pace, outstripping major world economies, in spite of the global financial crisis that struck hard. SMEs are one of the chief drivers behind India’s magnificent growth story. SME sector comprises of self-funded proprietary firms, private co-operatives, private self-help groups, Khadi, and Village and Coir industries. They not only provide massive employment opportunities to the populace but also ensure regional equilibrium by taking industrialization to rural and backward areas. SMEs make up a staggering 95% of the total industrial units in India, as of present. Further, the sector accounts for 16% of total lending through traditional channels.
Entrepreneurial grind and startup culture in India is on the rise and thus the upsurge in demand for adaptable monetary business advances. With that said, funds that come through banks, government organizations and other financial foundations are not easily accessible for SME players. Conclusively, SMEs in India make a chunk of the underserved segment when it comes to loans.
The digital revolution in lending is set to change all this and more. Promising optimization of payments, an increase in revenue, and cross-selling are possible with the use of technology in lending. As digital lending slowly gears up to capture market share in the SME sector, its positive outcome has changed the way business enterprises seek monetary resources.
Limitations of Traditional Lending for SMEs
SMEs often faced a lot of problems while availing credit through conventional methods because of the tedious process involved.
- Signature verification, endless documentation, numerous procedures, complex regulatory procedures, lengthy candidate assessment, manual labour, and arduous risk profiling were a roadblock to easy lending with traditional lenders. Given the manual nature of the loan origination process, the loan disbursal became a time-consuming exercise that tested the patience of applicants.
- Small & Medium Enterprise often faced problems with loan underwriting. The main factor that held back traditional money lenders from issuing loans was the use of outdated methods to determine the creditworthiness of an SME. A large part of the SME sector faces a crunch of sources due to inadequate Credit endorsing.
- Adding to the plight of SMEs, traditional lenders only offer secured loans that are issued against some collateral like real estate, gold, investment portfolio, machinery or stocks – as security. Due to this reason, even good SMEs with brilliant prospects of impressive growth in the future and the ability to back the loan in time were denied access to credit in the form of loans.
New Age Digital Lending for SMEs
Digital lending is witnessing a steep rise when it comes to SME landscape, with vivid expertise of the lenders in the area. When compared to traditional processes, digital loans are easier to obtain for SMEs. They are capable of disbursing credit instantly based on budget summaries, bank exchange history and e-commerce transaction behaviour of an SME entity were valid. Digital lending cleverly leverages technology and techniques like artificial intelligence, machine learning, and big data to empower the loan underwriting process with the help of cross-channel.
- Modern Fintechs base their loan evaluation and assessment on documents digitally uploaded by loan seekers. The application process is customer-friendly, without a need to fill long paper-based forms, gathering numerous documents to support the applications. With strategically reduced waiting periods, automation streamlines the process of evaluation and assessment, making instant loans a reality.
- The creditworthiness of SME applicants is evaluated using big data, psychometric questionnaires and social media behaviour, balance sheets in addition to their trading position. Alternate data like prospects of the business in the industry can be used to determine their creditworthiness. Digital lenders count on both unstructured and structured data to make risk profiling easy. This increases the chances of well-deserving SMEs of securing loans.
- As strict aftermath of the demonetization wave that struck the country, transactions are going cashless. Digital loans blend effortlessly into the dream of a cashless society; we aspire to be.
- With the surge in internet penetration in tier-3 and four regions, entrepreneurs can explore the markets without having to worry about geographical limitations. Further, a rapid increase in smartphone users in every part of the country is contributing to accelerating growth. Besides web-based technologies, digital lenders are adopting mobile-based technologies, steering in a new trend of Mobility-Analytics-Cloud & Social (M-A-C-S). It is as easy for an SME to avail loan from a village through digital channels as it is for one based in the big city and that helps in taking credit to most underdeveloped areas of the country and helps them grow.
India is expected to be a $5 trillion economy by 2025, and SMEs are a significant contributor toward the goal. Digital lenders help promising SME businesses in procuring assets speedily, as they comprehend the business thoughts behind the enterprises they cater to. Technology and use of data allow flawless interest classification, identification or unconventional sources of credibility as well as reduces the need for human intervention. It strengthens documentation in an automated fashion and refurbishes the way follow-ups are conducted with borrowers. Massive mobility of the modern SME borrowers in the market helps connection and communication with them anywhere or anytime.
Another reason why the digital lending wave is here to stay is that the ever-evolving industry can adapt to changes more effectively than traditional money lenders. It incurs lower expenses, uses the latest technology, brings down rates of interest and paces up with the times.
Finezza is a modern lending process management tool that helps lenders digitize and automate the process of loan origination, evaluation, and disbursal. It is a unique loan servicing software tool that can not only save time and money for a business but also enhance the customer service being offered to the end-user. It offers superior ease of deployment and ensures easy adoption with 24*7 customer service support. AI and ML algorithms make it a self-learning tool that mimics the understanding of loan evaluation officer and makes error-free judgments. It secures client data and leverages alternate data to serve loans to truly deserving applicants, bringing home better returns for the business.
To know more about Finezza, get in touch with us!