Impact of Digital Lending on MSME in India

August 24, 2018by Team CapitaWorld0
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As per Small Industries Development Bank of India (SIDBI), Medium & Small Enterprises constitutes around 90% of total businesses in India and are the 2nd largest employers after the agriculture sector. Despite of its contribution to Indian Economy, MSME sector is facing various challenges such as lack of funding and market expertise among others.

Some of the challenges faced by MSMEs are mentioned below:

  1. 1. Supply chain inefficiency.
  2. 2. Increasing global competition.
  3. 3. Poor Financials and Credit Rating.
  4. 4. Absence of adequate and timely finance.
  5. 5. Lack of modernization & expansion planning.
  6. 6. Unavailability of proper documents & collateral.
  7. 7. Low budgeted & Ineffective marketing strategy.
  8. 8. Time consuming follow ups with concerned authorities.

Digital Lending – The Way Forward

In our previous month Article – Digital Lending in India – we discussed technological evolution of Business Ecosystem in India. In today’s article, let us explore impact of this revolution on the Growth of MSMEs in India.

Lending as a widely understood concept is defined as financial institutions offering money to Individuals (Home Loan, Car Loan, Personal Loan) and Corporates (Business Loan) for a period of time and under agreement of repayment.

Digital Lending Platforms attempts to carry out funding process including credit checks, documentation etc. through paperless/ electronic means. It has enabled borrowers to apply for loan 24×7 from any internet connected device from any location.

With emergence of digital lending model and adoption of latest technological developments, existing lending model is expected to substantially improve in near future.

(Source: http://blogs.worldbank.org/psd/india-digital-finance-models-lending-small-businesses)

Benefits for MSME Sector

The digital technologies have enabled MSMEs to:

  1. 1. Take faster decisions with real-time insights.
  2. 2. Get access to international best practices and technical know-how.
  3. 3. Achieve operational excellence with regulatory requirements.
  4. 4. Service a new class of borrowers who were not getting funding from traditional sources.
  5. 5. Reduce the costs of underwriting, which has increased the possibility of lower rates of interest.

CONCLUSION

Earlier, the lending process was perceived to be an exercise of lengthy paperwork, following complex regulatory requirements, physical signatures etc. In the past few years, we have seen various startups and government initiatives to improve existing credit process unprecedentedly.

With the clever and quick use of technology, now financial institutions are able to do risk profiling in a better way. Most importantly, now borrowers can get funding in a safe, transparent and efficient manner.

At CapitaWorld, MSME’s can get business loan In-principal approval in 30 minutes. For more information, you can call us on toll free number 18001037491 or submit your query here.


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