According to recent RBI demand and supply estimates, there exists a US$490 bn. credit gap for MSME that banks and other traditional financial institutions are unable to cover. However, the silver lining is the rapid shift in India’s lending landscape by new-age lending companies.
In an exciting webinar organised by TheSMEIndia on “New Age Lending To Old Enterprises With Digital”, Amit Kumar CEO and Founder MSMEx, Jinand Shah MD & Founder-Online PSB loans and Manish Lunia, Co-Founder at Flexiloans.com share their views and the way forward.
New Age Mechanism
You can access credit demand across India at a click of a button, lending platforms have been able to develop ubiquitous platforms, Lunia said On the similar lines on how Uber and Swiggy have redefined experience, similar could be experienced by new-age lending platforms, he further explained.
New age lending platforms are helping lenders disburse in record timelines, so they are bringing the value add required over the last few years, and it adds immense value to the table, said Jinand Shah of OnlinePSB Loans.
Amit of MSMEx explains that there are two different approaches to lending. Based on past performance and new-age lending, the entire process of traditional banks is being simplified. Another aspect is that the new age lending is not focusing too much on the past but also on growth. E.g. a company’s turnover increases, the bank will look at an only marginal gain, but the new age lending practices see real-time growth and do underwriting based on recent performance. So past matters but the current matters more, Amit said.
Difference & Awareness
On what difference is being seen, Shah explains, the difference is being seen, but the quantum needs to be seen, it’s still taking the baby steps while the infrastructure is there, and MSMEs too look forward but reach still a more significant problem to solve. There will be new models evolving like cash flow, payment infrastructure, etc. 80 percent of the space is yet to be covered, and MSMEs need to be more aware of these kinds of services, Shah adds.
Lunia explains that the micro-segment is growing upwards in India, and medium and small is growing flat. However, awareness among these enterprises is still a concern, and MSMEs who have used new-age services are shocked that they weren’t aware of these practices.
According to Jinand, everyone in the industry is trying to make awareness that these new-age financing options are available. Micro is the maximum base among MSMEs, and the reach to that micro-segment using this infrastructure is one thing to be solved. Second, awareness among banking infrastructure, MSMEs applying for credit with banks aren’t getting with the infrastructure which has been created. Many times SMEs have applied and gets approved and has to go to a branch to get it disbursed, which is a turnaround time of 7 days, this issue of MSME applying online and branch not being aware of the infrastructure is another challenge, Shah added.
Awareness is two sides driven, not only within MSMEs but also in bank branches. Out of 100 applications, 35/40 are disbursed, but 60/65 would think these models don’t work. It’s a mammoth task, according to Shah.
Manish of Flexiloans says five years ago, the bureaus in India had only about 20 crore scores, and today it’s about upwards of 50 crores. Of all that has happened, 70 percent of that has been contributed by fintech or technology companies, fintechs contribute 60 percent of new to credit.
Similarly, in the SME world, new age players like us get monthly one lakh applications across India. Compared to established NBFCs working with DSAs and doing 5-10K applications.
The power of real-time tracking and knowing about the status of the application is immense. Sixty percent of our loans are in tier-2 and tier-3 cities and are disbursed in 48 hours in co-lending form with 8-10 banks and NBFCs, Manish adds.
Awareness is a journey that will continue to happen, and now the power has been shifted from DSAs to individual customers (read as MSMEs). Manish said that technology significantly impacts a customer’s ability to apply, track, and seek credit in shorter timelines.
Amit of MSMEx highlights an essential point around awareness, expectation and financial literacy.
There’s an expectation challenge that MSMEs over the years have got accustomed to OD loans where rates are 8-10 percent, and new-age players charge 14-15 percent, and that’s fair on lenders parts considering the risk. But MSMEs think, why take it on the double? We try to explain if it’s double the rate of a traditional lender, but it tries to bring a lot of value and faster timelines to the table, Amit said. A lot of thrusts is required in terms of financial awareness.
The second expectation is about the quantum of credit required, a typical MSMEs would seek a more significant sum of amount on day one, but they need to understand they need to start small and build up their profile and credit history. So that problem is again about financial literacy, Amit said.