Lending to small and medium-sized enterprises forms the core of the Financial institution’s financing business. However, due to the complex and often delayed credit-seeking procedures, the SME sector suffers the most. Additionally, Credit underwriting and finding SMEs with reliable credit history is also a super lengthy process for banks, resulting in a situation where the relationship between banks and SMEs has begun to dwindle. A considerable market gap has led to the creation of Fintech firms that are focused explicitly on SME funding by lending a framework to their credit flows and empowering them to obtain SME Loan much quicker.
While India’s economy grows more extensive and more formalized, banks have tremendous opportunities in the SME segment to increase their portfolio. Each month, new products enter the Working Capital loan market with NBFCs and Fintech firms accelerating modernization in the sector besides stimulating competition. Banks have also recognized the significance of customizing risk strategies and systems of loan evaluation to accommodate the SME segment’s credit requirements better. And, to accomplish that, they are expanding their service portfolio by offering novel products, leveraging analytics, and refining technology to develop personalized initiatives by forging partnerships with the Fintech firms to expand their digital outreach.
Banks are performing their part to help MSMEs adapt to the one-nation tax system by engaging in capacity building with several trade unions and generating tailored loan for Small Business, to overcome the transitory financial difficulty. For instance, one of the banks proposed a credit service (up to Rs 1 crore) earlier this year to support small companies make use of business loans based on their GST returns— The product didn’t require further analysis of the balance sheet or bank statements. If you are a GST compliant MSME, you can get access to credit within 24 hours of application. Also, the Banks are quickly switching to scorecard-based funding to make the decision more transparent and do away with the subjectivity inherent in financing small businesses. The situation of SME finance in India is evolving fast with the advent of online borrowing and Fintechs. Banks are moving quickly to embrace the digital world and simplify their backend procedures to realize the gains in the short and long term. End-to-end digitization will not only allow banks to minimize their decision-making timeline while approving SME loan but will also lessen the processing costs associated with lending to these units— Alongside timely access to funds, it will also bring down the price of an Unsecured Business Loan.
Through their innovation and new-age technologies such as predictive analytics and AI, fin-tech companies are well equipped to assist in real-time decision making, stretching out to even that last mile consumer. Some of the reputed Fintech firms also offer services such as translating scanned financial bank accounts into personalized formats for quick decision-making and providing borrowers with digital platforms for easy access to Loan for Retailers. In the coming future, Banks and Fintechs will have to collaborate more often to innovate personalized digital services while also ensuring that the maximum number of SMEs could take advantage of the structured channel of borrowing.