MSME these days are unable or unwilling to change their finances and the working of their enterprises according to the transformational and automation of financial processes. Many MSMEs lack the awareness and comprehension of availing formal financial series. To cover this roadblock, Fintech has been introduced to offer automated financial products like investments and loans digitally.
Fintech is the application and presentation of technology to offer financial services to new and upcoming market segments in a viable manner, which can be economically beneficial too.
Role of Fintech
Fintech partners with MSMEs and Indian Markets to provide crowdfunding, MSME loans, credit, and other online lending amenities. They use alternative scoring, digital and virtual channels of loans, and other financial products for acquisition and channelizing their financial needs. Some other functions of Fintech are:
- Enabling transfer of funds from various sources and for a multitude of reasons
- Building the requisite structure of payment using the latest technologies and mobiles
- Investment sources
- Robo advisors, financial advisors, and discount brokers
- Technology that is governed by investment strategies can also offer wealth advisory services
- Personal Finance Provisions
- Tax Filing and Processing
- Financial Planning and Spending
- Services providing credit scoring
- Creating active individual profiles like spending, credit profiles, and investment profiles for management.
- Creating the risk profile of a customer and platform for onboarding customers.
- Launching new tools to derive value and significance from unstructured data and large data sets
- Insurance, wearables, and kinematics services are included too.
Fintech Segments in India
• Peer to Peer lending
• Crowd Funding
• Market Place for Loans
• Online Lenders by NBFCs
• Credit scoring platforms
• PPIs and M-Wallets
• POS services and Merchant Payments
• International Remittances
• Crypto Currencies
• Robo Advisors
• Discount brokers
• Online Finance Advisors
Personal Finance Management
Tax Filing and Processing
• Spend Management and Financial Planning
• Credit Scoring Agencies
• Big Data
• Customer Onboarding Platforms
• Insurance Aggregator
• IOT, wearables, Kinematics.
How Fintech works with MSME loans
In light of the Speech delivered by the honorable Prime Minister of India where he claimed that small businesses could avail a loan in 59 minutes, it portrays the outreach of the MSME program in collaboration with Fintech, so let us understand how exactly this works:
- Fintech offers 3 significant services to its customers:
- Data Analysis – This includes calculating and identifying the credibility and goodwill of a small business and assessing the collateral available to take the loan.
- Mobile Technology helps in making and receiving prompt payments and swiftly and smoothly, applying for new loans.
- Artificial Intelligence – which helps to make the loan application procedure more accessible and user friendly and to customize them as per the individual needs of customers.
- Fintech associated companies make sure that the financial needs of the MSMEs are conveniently met through them in the most lucrative manner regarding:
- Immediate disbursal of short-term loans
- Low-interest rates applicable to these loans
- Simplified and smooth loan application and disbursal processes
- Low cost on transacting and applications.
- Fintech companies fill the gap and slack by forming and maintaining a mutually favorable relationship with MSMEs as currently, there is a funding deficit for this sector, so it is an imitative taken by these companies to extend financial support to the MSME sector.
- Fintech companies are laden off with the burden of bureaucracy and provide quick access to financial loans. These companies are equipped to carry the associated risks and contain competencies regarding availing loans, retail baking, wealth management, and invoicing. The Finance industry is witnessing a favorable and beneficial amalgamation of traditional players providing financial services and Fintech.
Although there are teething issues, this step ensures futuristic expansion and gap filling in offering MSME finance.
Effect of fintech on MSMEs
MSMEs offer employment to over 100 million people, contributes to 28.77% of the country’s GDP, 40% contribution towards exports, and around 45% towards industrial inputs. So, there is a need to financially support and encourage this sector by offering them reasonable policies and campaigns. This is where Fintech comes into picture where it has eased the struggles of MSMEs and provides easy financial services.
Effect of Fintech on MSME finance today are:
Offering augmented and updated technologies and encourages reality and artificial intelligence. Digital technologies can be profoundly transformational for the benefit of the MSME sector.
- Data analysis, advanced robotics, artificial intelligence, augmented reality, and connective power of the internet are some of the few things that are powered and contributed by Fintech to enhance the working of this sector.
- Technological concepts like SMAC, which means social, mobile, analytics and cloud, automation, and transparency and efficiency, are the traits of Fintech.
- Implementation of GST has encouraged small businesses to move towards enterprise technology and imbibe Fintech companies to deter costs regarding non-compliance and to encourage high productivity and profitability.
- To avoid liquidity constraints, easy access to loans with a considerably reasonable rate of interest, are made available to MSMEs.
- Fintech helps fill the credit gap and supports MSMEs by contributing to direct government lending, credit bureaus, and the formal baking space. Let us take a look at the current credit gap in the MSE Sector.
Revenue in INR
Credit Demand (Crores)
Bank Credit supply (Crores)
Credit Gap (Crores)
Less than 15 lakhs
15 – 30 lakhs
30 lakhs – 1.5 crores
1.5 – 3 crores
3 crores – 18 crores
Technology and Internet ecosystem further help MSMEs connect with customers globally, reduce costs, optimize supply chains, and drive higher and better productivity. The use of the internet provides a plethora of opportunities, and the operations of these small businesses have improved effectiveness and higher yield.
- Eliminates the presence of an intermediary when it comes to procuring raw materials, sourcing benefits, and financial solutions. It encourages an organized market structure and effectively reduces costs strengthening the MSME framework.
- Broadens and enhances the portfolio of MSMEs and establishes it as a preferred option for global consumers by supplying an e-commerce platform. The aim is to make the small business a one-stop-shop for the demands and requirements of customers, fulfilling the financial needs of the SMEs.
Features of Fintech in MSMEs
Use of Fintech for financing MSMEs creating a value chain of financial series like retail and commercial banking, wholesale payments, wholesale banking, customer relationship, and payment services.
- Innovations enabling Big Data Analytics, applications of lock Chain Technology, algorithm Trading, emerging collaboration opportunities for banks, and financial technology innovations.
- Provides services like credit underwriting, marketplace lending, building and sustaining small businesses, and filling the funding gap.
- Fintech has emerged as an improvisation in access to finance through Banks, financial institutions, and even self-loans huis becoming aggregators of financial products.
- Offers flexible and innovative funding options leveraging the pervasiveness of smartphones. Encourages the MSMEs borrowers to apply online in a few minutes customizing the loan details as per individual requirements and, with quick turnaround time, offers a smooth disbursal within 2-3 days with minimal hassle.
- It offers support to small businesses that may not have collateral, a revenue system in place, or experience in years of trading. Assess the creditworthiness of the MSMEs and encourages machine learning and analysis of big data.
Benefits of Fintech in MSMEs
GDP of our nation is expected to grow at a 6-8% growth rate in the coming years. The small business, along with the series of Fintech, can gauge this steady economic growth driving high levels of income and consumption together with low penetration of household credit.
- Improving digital infrastructure and the adoption of digital financial services and products will only raise the bar of economic growth.
- Huge market growth and the emergence of Fintech and associated financial institutions can empower the market in payment, lending, investment management, and low penetration and focus on integral areas of the economy.
- Beneficial support is coming from Indian regulatory authorities, like RBI, SEBI, and IRDA, which have not induced any prohibiting guidelines for Fintech to overregulate their services.
- Millennials of India and the youngest populations are gravitating towards new platforms by adopting digital channels to initiate product services and search for new strategies, inquiries, and online payment structures.
- India stack can improve infrastructural, connectivity, and utility of financial services by supporting digital transactions. It allows Fintech companies to utilize the digital infrastructure towards paperless, presence-less, and cashless delivery of financial services.
- Fintech companies contain the benefits of lower transactional costs, improved propositions diligently utilizing the advances in technology and adoptions of cloud services, thus mitigating the transactional costs and enabling subsidization.
- Encourages low rates of interest, low-cost money funds, robo advisory services, and investment management for MSMEs
- Key Factors that have led to the success of Fintech in assisting MSMEs
- Customer Loyalty: Fintech must manage to attain a seamless customer experience by reducing the friction and stress of digital transactions and maintain the loyalty and satisfaction pf the customer.
- Technology & IT Infrastructure Technology and IT infrastructure is the backbone and foundation of FinTech.
- Innovative use of Data Big Data and analytics – This offers tremendous potential to drive operational costs efficiency, give rise to altered business models, offer personalized and customized products and services, and understand customer needs.
- Funding Environment – The crucial reason for the advancement and acceptability of Fintech is to make the availability of Funding a hassle-free process.
- Value Proposition – Fintech understands customers’ pain areas and addresses them to build a convenient and sustainable business platform that creates value.
- Cost of Operations Most FinTech companies have a cost advantage like reduced servicing cost for customers, reduced cost of distribution, lower customer acquisition cost, and much more.