Tuesday, March 28, 2023

Digital Growth: These enterprises will lead the next phase of digital development,…

(Ketan Patel)

The growth of fintech in the country has changed the way people and businesses approach financial services. With innovative and cost-effective solutions, they are helping to increase access, reduce friction between customers and financial institutions, and attract capital to India. They provide flexibility and the ability to package and unbundle products and the ability to specialize in areas where there are deficiencies. The rapid expansion of fintech players has helped in furthering financial inclusion. The new age technological advancement will boost the process of digitization adoption in the country, which will benefit both business industry and consumers.

Contribution of small companies to GDP

India’s population is huge India is diverse and there is a wide gap in financial inclusion between urban and rural population.  For such a niche market the traditionally cash-driven economy must be taken up through the next phase of development, which can be accomplished through our massive MSMEs. More than 70 million small companies contribute to more than a quarter of India’s GDP. As such, it is important that they are equipped with the necessary tools to drive digital inclusion and compete with the e-commerce giants. To fully utilize and leverage the significant potential in MSMEs, we need to increase their access to financial solutions. Fintechs have the potential to go deep into the country to target this huge group.

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How MSMEs are helping

Fintechs are helping MSMEs by making it easier to take payments are helping. It enables merchants to accept various types of payments using their credit and debit cards, digital wallets and other digital mediums by providing solutions like UPI, QR code and Payment Sound Box. Smart Point-of-Sale (POS) machines increase the incentive for less-cash transactions, as the process is seamless, convenient, cost-effective and easy-to-use. At times, some merchants prefer to accept cash from customers despite the QR code placed on the POS terminals, mainly because the merchant’s suppliers or vendors accept payment in cash. Digitization of the end-to-end supply chain will drive merchants to process supplier or vendor payments digitally, which will eventually facilitate digital payments from customers at the POS. Additional value-added services allow merchants to streamline their operations, supply management, and inventory. Fintechs through their technology solutions can provide premium services to MSMEs at most affordable cost. In addition, it helps MSMEs to become digital banks due to their ubiquitous network and improves access to last mile financial offerings.

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Barriers to MSMEs

Another major constraint in the expansion of MSMEs is the paucity of credit. Since they are outside the financial circle, a major reason for the hesitation of traditional banks is the perceived lack of data at their disposal to analyze the creditworthiness of the borrower. Apart from this, MSMEs often struggle with lack of working capital to carry out their operations. Inability to raise sufficient funds to sustain day-to-day business hinders the smooth progress of one of the pillars of the economy. Globally, there has been a sea change in the way financial institutions are leveraging large scale payment and transaction data for next generation credit assessment. Fintechs, with their digital capabilities and plug-and-play model, can create solutions that match the cash flow needs of MSMEs and provide short-term, small loans, thereby freeing them from the trap of high-interest debt Can be saved from getting trapped in. This is especially beneficial for merchants who want to borrow to meet their working capital requirements.

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Fintech Features

In addition, many fintechs have They have their own special lending methods, which allow them to provide loans with minimum paperwork and without collateral. They also get instant approval based on scorecard and payment within minutes for small loans. Companies often use their own algorithms to assess creditworthiness by analyzing the transactional behavior of merchants. The transparency brought about by digital payments can also improve tax compliance and GST collection.

How MSMEs can contribute

To empower MSMEs and access financial solutions By enabling, fintechs are developing disciplined and responsible repayment behavior, and automatically helping the unorganized sector build a healthy credit score, which ultimately helps them raise higher capital in the future. With current and new digital lending innovations, India’s strong MSME sector of around 8 million will continue to be an important driver of economic and social revolution, contributing to India’s vision of becoming a $10 trillion economy.

(The author is the CEO of Mswipe. Views expressed are personal.)

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