The Credit Gap in India’s MSME Sector and How Fintechs are Plugging the Gap

The past few decades have been a golden period for technology and digitisation. We are now so used to using technology in our daily lives that we cannot imagine how we survived without it. One area where technology has made deep inroads into the human experience is financial services.

Thanks to FinTech, many of us don’t need to use paper cheques, visit a bank branch to update our passbooks, or fill out lengthy forms to meet RBI’s know your customer (KYC) requirements. And these are just some of the most visible implications of FinTech. The “marriage” between traditional financial services and technology has deeper implications in many areas like CredAble and Upscale are changing the way how working capital landscape globally. Let’s take a look.

How FinTech Has Revolutionised the World As We Know It

The term “FinTech” refers to the integration of technology into the financial landscape. In the 21^st century, we think about FinTech in terms of virtual banking, automated portfolio managers, digital wallets, equity trading platforms, cryptocurrencies, working capital financing platforms, and B2B financing applications.

FinTech applications promise greater convenience, ease of use, and accessibility to users. Moreover, FinTech companies like CredAble prioritize user experience through enhanced functionality and customization.

Traditional financial institutions require tons of manpower, money, and regulatory clearances to function and grow. This limits their agility and ability to innovate. In contrast, FinTech firms serve customers through scalable technology-based financial services. And since they leverage the use of existing infrastructure, like mobile and computing networks, they are able to reach more users with innovative new products and services.

All of these factors have contributed to the recent galloping progress of FinTech and helped to democratize financial services for a vast number of users – both individuals and businesses

FinTech and Personal Finance

Millions of users worldwide use FinTech tools to pay bills, track spending and savings, create budgets, consolidate debt, make contactless payments, and more. FinTech innovations are also bringing investment and wealth management into the mainstream. Services that were formerly reserved for investors with a large investment corpus and funds to hire professional investment advisors are now available to everyone.

Other new platforms have cropped up recently, creating a democratic marketplace for financial products and enabling individual investors to trade in cryptocurrencies. Roboadvisors are another fast-growing FinTech sub-sector, providing users with customized investment advice based on their unique risk-taking capacity and financial goals.

FinTech and Lending

Traditional lenders can usually access very limited data to perform risk assessments on potential borrowers. As a result, they either deem a huge number of people ineligible for loans or charge very high-interest rates that are unsustainable for a majority of borrowers.

FinTech inserts technology into the risk assessment and onboarding process. This enables lenders to access and factor in more data to determine a borrower’s creditworthiness. Such data-driven decisions help to expand the lending ecosystem and allow millions of previously-underserved or unserved people to access much-needed capital.

FinTech for B2B

B2B FinTech companies are changing the way SMEs function and grow. FinTech applications are streamlining many enterprise processes that typically require a lot of manpower and paperwork, such as supply chain financing, invoicing, and treasury management.

They are also playing a part in reducing corporate customers’ risk exposure. For example, the process of assessing risk over multiple forex markets was previously riddled with human error that could result in huge losses for companies. But technology automates the risk assessment process and seamlessly integrates it into day-to-day operations, reducing companies’ exposure to foreign exchange risk and minimizing the potential for loss.

Lending is another crucial area where FinTechs are making an impact in B2B, particularly among SMEs. Banks are usually apprehensive about lending to smaller, potentially volatile businesses with little or no credit history. SMEs too are wary of the red tape and high-interest rates typically associated with banks.

Moreover, FinTech removes the pressures of limited working capital, allowing SMEs to grow faster and earn higher profits.

How the World is Adapting to and Embracing FinTech

In recent years, more users are switching to digital banking solutions like contactless payments, P2P fund transfers, and international remittances. They are also demanding easier, low-friction digital KYC processes. Many Indian banks have launched API platforms, which allow non-financial companies to leverage the power of “embedded finance” to provide financial products to their customers and enhance customer journeys with integrated, value-added services. FinTech makes all of this possible.

Millions of users are also using blockchain-powered smart contracts that speed up transactions and reduce costs. They also protect data integrity, allowing participants to trust each other and complete transactions with minimal hassle.

FinTech is also contributing to the increasing popularity of digital signatures. The elimination of wet ink (paper) signatures allows users to save both time and money. Plus, digitally signed documents are legally binding, eliminating complications due to regulatory requirements or disagreements – in personal banking services, business loan clearances, and many other areas.

The Future of FinTech

In the future, more and more consumers and businesses will demand innovative financial services, higher speeds, efficiency, and ease of use. Traditional financial institutions will not be able to keep pace with these developments. FinTech will fill this void with automated and digital services like video banking, AI-powered chatbots, roboadvisors, and digital lending platforms. The demand for blockchain-as-a-service and applications like cashless payments and smart contracts will also increase.

Fintech-led, technology-powered developments have already shown that they can eliminate the barriers that have so far blocked credit flows to lakhs of MSMEs in India. New-age supply chain financing solutions are doing the same. These solutions are not only simplifying credit and cash flow management but also helping to create new opportunities for MSMEs. These businesses have a lot to look forward to in the coming years, thanks to digitization and technological innovation. Fintechs hold these two crucial keys and will play a vital role in enabling MSME expansion and growth in India. Exciting times lie ahead!

Think Working Capital, Think CredAble!