The Indian financial sector has seen rapid development with the advent of a large number of startups and micro and medium enterprises. Technology has always been the driving force behind these ambitious business institutions. These Micro, Small or Medium Enterprises, commonly known as the MSME Sector, are the primary contributors to the Indian economic sector. Together, they are responsible for 40% of India’s export with more than 10,000 manufactured products.
MSMEs and Fintech Companies
These MSMEs constitute not only the urban start-ups but also the rural and semi-urban entrepreneurs. Not all segments of the Indian society have access to proper funding and credit opportunities, leave alone the use of technology and software products. As per financial reports by government institutions, most of these MSMEs suffer a credit deficit of millions of rupees, despite government loan grants and schemes.
At this juncture, there has been an upsurge of the so-called Fintech companies that provide the necessary digital push to these small-scale ventures. Following demonetization and the GST revolution, the MSMEs have realised the importance of collaborating with Fintech companies to avail their services at low costs and more benefits.
What is FinTech?
Fintech or Financial Technology is the use or delivery of financial services using the latest technology. Several upcoming startups utilise Fintech services to automate their operations and processes. Fintech started as just the utilisation of automated software and technology in business operations. Over the years, it has expanded its scope to back end systems, retail banking, fund procurement, and market capitalisation.
Some simple Fintech activities can be considered as follows:
- Use of digital money or digital wallet in business transactions
- Using a banking app on your smartphone for money transfer
- Applying for a loan online or on your mobile
- Investment management without third party assistance
- A credit check and Bill Payments online
Why is Fintech popular with MSMEs?
Various reasons are responsible for the popularity of Fintech companies and their services. Let us check some of these reasons.
- The Fintech companies have succeeded in making the entire process digital, mobile-friendly and quick.
- The MSMEs find easy access to credit and loan procurement with these firms.
- They have made the lending process easy and hassle-free with quick disbursals of the loan amount.
- These firms provide the MSMEs with not only lending facilities but also mobile technology and automation of services.
- They also provide retail banking and wealth management to the MSMEs as their core targets.
Below are the sectors where Fintech’s expertise has penetrated the Indian market.
|Payment Merchant Services|
|Lending and Banking|
|Mobile wallets and E-Commerce|
|Credit and Landing|
|Taxation and Insurance|
|Stocks and Trading|
|Compliance and Scoring|
Ways in which FinTech Companies can drive the MSME sector
Let us now go through in detail over the contribution of Fintech companies in driving the MSME sector. We will cover this contribution under 4 heads, namely,
- Start-up Finance or Procurement of working capital
- Automation of Processes
- Low Operational Costs
- Utility Services
1. Start-up Finance or Procurement of working capital:- MSME loans or MSME Finance is the utmost service provided by the Fintech companies. These lenders are coming up with attractive and easily available lending and credit schemes for small business ventures. Almost 75% of Fintech companies provide short term credit facilities to the MSMEs for securing working capital.
They have come up with customised loan products with attractive interest rates and flexible repayment tenures. The Fintech firms have made the entire loan application process digital, easy and quick. Some lenders even provide quick loan disbursal in up to 2 days.
Fintech lending is fast emerging as the most popular medium of generating MSME finance and working capital for start-ups. These Fintech corporations are helping the MSMEs with lending, wealth management, retail banking, and even low-cost asset management.
2. Automation of Processes:- All low scale start-ups and MSMEs begin low. They need ample finance to start and manage their operations and day to day business. Fintech companies have eased out these teething problems for these starters by providing fast, fully digitalised and easily accessible platforms that make business management hassle-free and less prone to errors. Before these companies came up, the start-up would have to struggle with loan procurement, asset management, inventory details, and other operational functions. However, with a large number of automated software applications and tracking systems available now, operational hassles have become low.
3. Low Operational Costs:- Most MSMEs face financial crunches in the earlier stages of their set-up and operations. They have a limited financial supply which has to be divided among loan payments, procurement of inventory and assets and also for working capital management. Organisations need money to manage their day to day operations like utility bills, payment of salaries, rent, etc. MSME sales and profits also undergo seasonal fluctuations and irregular cash flows. Fintech provides cash-flow based easy financing and agile technologies that are low cost and flexible.
4. Utility Services:- Besides providing easy and quick, collateral-free loans to small entrepreneurs, the Fintech companies also indulge in providing utility services to their clients that boost the further operational efficiency of these MSMEs. Risk Profile assessment, automated credit analysis, stock, and trade services and wealth management and insurance are some of the fields that Fintech has touched with its magic. Several Fintech firms also provide Infrastructure and Enabling technologies, data analytics and several B2B platform services also.
Fintech has carved a niche for itself in the contemporary business market. The Indian market infrastructure is getting better day by day due to government policies and a push in e-commerce. With MSMEs on an upsurge, innovative means of low cost and high volume loan sanctions and creditworthiness becomes a top priority in the market. Fintech initiatives in the retail and the banking sector have been popular and the MSMEs flock to these firms for cheap and timely assistance.
Thanks to Fintech, MSMEs are fast emerging as a strong contributor to our nation’s GDP.