Innovating To Differentiate: Use of Technology & Client Centric Approach by Lenders in the MSME Segment
The Indian Micro, Small, and Medium Enterprises (MSME) sector has witnessed significant transformation through technological innovations adopted by lenders. This evolution addresses the challenges of limited access to formal credit, inefficient processes, and high operational costs.
Digital platforms have enabled seamless loan applications, faster processing, and real-time credit disbursement. Fintech companies and traditional lenders leverage advanced technologies such as Artificial Intelligence (AI) and Machine Learning (ML) for credit risk assessment. By analysing alternative data like transaction history, GST filings, and social behaviour, lenders can assess the creditworthiness of MSMEs lacking conventional credit scores.
Blockchain technology is also emerging, ensuring secure, transparent, and tamper-proof documentation for MSMEs, reducing fraud risks. Moreover, digital payments, UPI, and e-invoicing streamline financial management for businesses, indirectly aiding lenders in monitoring cash flows.
Adopting Digital Solutions
• FinTech Partnerships: Traditional lenders are collaborating with fintech companies to improve efficiency and expand their reach. For example, ICICI Bank has partnered with fintech platforms to use advanced analytics for better credit risk assessment and quicker loan approvals.
• AI-Powered Tools: Lenders like CredAble utilize AI and machine learning for cash flow-based lending, ensuring faster and more precise loan processing. This is particularly effective for MSMEs without traditional credit histories.
Customized Lending Products
• Tailored Loan Offerings: State Bank of India (SBI) offers specialized MSME products like working capital loans, term loans, and cash-credit solutions tailored to different industry needs. For example, SBI’s SME Gold Loan is specifically designed for MSMEs to leverage gold as collateral.
• Sector-Specific Solutions: Kotak Mahindra Bank focuses on manufacturing MSMEs by offering loans linked to supply chain financing, helping businesses manage receivables efficiently.
Embedded Finance and Supply Chain Integration
• Supply Chain Financing: Lenders like HDFC Bank integrate financing solutions into supply chains, enabling MSMEs to access working capital seamlessly. These programs are particularly popular in industries like FMCG and retail.
• Anchor-Based Lending: Programs driven by anchor clients (large corporates) ensure financing for smaller suppliers within a corporate ecosystem. This approach reduces risk for lenders and improves MSME access to credit.
Leveraging Alternative Data for Credit Scoring
• Account Aggregator Framework: Banks and NBFCs are using data from GST filings, bank transactions, and utility payments to assess creditworthiness more accurately. For instance, Indifi utilizes transaction data to extend loans to MSMEs in e-commerce and hospitality.
• POS-Based Lending: Fintechs like Razorpay Capital and lenders like Axis Bank use point-of-sale (POS) data to provide quick loans, especially to retail businesses.
Focusing on Digital Infrastructure
• Comprehensive Platforms: Open Credit Enablement Network (OCEN) allows multiple lenders to offer MSME loans with a unified digital experience. This not only standardizes processes but also lowers the cost of loan origination.
• Super Apps: Platforms like CredAble’s UpScale offer MSMEs an all-in-one solution for financing, receivables, and vendor payments, reducing dependency on multiple service providers.
Government Collaboration
• Public Schemes Integration: Lenders integrate government-backed initiatives like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which provides collateral-free loans, making formal credit more accessible.
• ONDC Integration: Platforms like SBI YONO are tying up with government networks like the Open Network for Digital Commerce to enable seamless credit flow to e-commerce-focused MSMEs.
By combining technological innovation, customer-centric approaches, and partnerships, Indian lenders are not only differentiating themselves but also driving the formalization and financial inclusion of MSMEs.
