How Fintech Is Impacting SME Finance Sector in India

Small and medium enterprises (SMEs) make significant contributions to exports, Gross Domestic Product (GDP), and employment. They are important for the economic growth of India. Until recently, this sector was under-served by financial institutions due to its diversity, making it riskier for lenders.

Additionally, most SMEs are family-owned businesses with limited credit history and lower ratings, making it difficult to access formal lending. However, in the last few years, the Government of India has encouraged lending to this sector, as it is crucial for the overall development of the country.

What is FinTech?

Financial Technology, commonly known as FinTech, uses improved and automated techniques to use and deliver financial services. It is useful for companies, businesses, and consumers to enhance financial operations and management. These services are delivered based on advanced algorithms and software, which computers and smart devices use.

Impact of FinTech on financial services in India

A huge impact of the new FinTech solutionshas been on lending to the SME sector. Some of these include:

  • Emergence of inventive lending platforms has enabled small businesses with no credit history or financial background to avail of formal lending
  • Advanced tools and technologies like machine learning, data analytics, and artificial intelligence (AI) helps lenders to provide customized SME loans with the current deficit being estimated at approximately INR 16 lakh crore
  • Lenders now have access to reliable and high-quality data from trustworthy sources like the Goods and Services Tax Network (GSTN), which enables them to reach the 9.2 million users to deliver improved business loan facilities
  • Accuracy in the verification and validation of the information enables the underwriting procedure;this improves the efficiency and coverage for innovative models like vertical-based, flow-based, and ecosystem-based lending at affordable SME loan interest rates
  • E-mandate services will allow digitalization of aspects like post-approval documentation in the lending process, improving the digital funding value chain
  • Physical National Automated Clearing House (NACH) increases the time and costs of borrowing; digital e-NACH mandate addresses these concerns to improve the entire procedure
  • Non-banking financial companies account aggregators (NBFC-AA) eliminates the challenges arising while collating the financial data, as they use API-integration to extract the necessary information after getting users’ approvals and complying with the regulatory norms

Lenders like Mahindra Finance offer customized solutions for SMEs to avail of credit facilities. To check the SME loan eligibility, interest rate, and other terms, business owners may check the company’s website.

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