Fintechs and NBFCs can solve credit issues for SMEs and MSMEs, says Vikas Singh of Sugmya Finance

In an interview with MintGenie, Singh said that fintechs and NBFCs can play a considerable role in solving the credit accessibility and creditworthiness of SMEs and MSMEs.

Edited Excerpts:

India has the largest MSME base after China. Keeping that in mind, what trends do you think are dominating the industry right now? Can you highlight at least four points?

India’s micro, small, and medium enterprises (MSME) sector, the second largest in the world after China, is poised for significant growth in the future. The landscape for MSMEs is being shaped by various key trends in 2024, presenting both opportunities and challenges in a rapidly evolving business environment. Some of the dominant trends in the sector include:

Increased adoption of digital technology: MSMEs are increasingly leveraging digital technology to penetrate rural India and reach previously untapped markets.

Scaling e-commerce: As online shopping continues to grow, many SMEs and MSMEs continue to take advantage of e-commerce platforms to access new markets and expand their reach.

Industry collaboration and partnerships: Collaborative efforts between SMEs, large organizations, and industry players drive innovation, knowledge-sharing, market expansion, and mutually beneficial relationships.

Financial inclusion: In 2024, the emphasis for governments and financial institutions will be on improving financial inclusion for MSMEs. This could include streamlining loan procedures and encouraging the utilization of alternative funding options such as peer-to-peer lending and microloans.

How do you think fintechs and NBFCs can solve the credit accessibility and creditworthiness of SMEs and MSMEs?

Fintechs and NBFCs can play a considerable role in solving the credit accessibility and creditworthiness of small and medium-sized enterprises (SMEs) and MSMEs. It can be achieved by leveraging technology for assessment, using digital platforms for loan processing, offering tailored financial products, and engaging in collaborative ecosystems.

Fintechs and NBFCs are well positioned to address the credit accessibility and creditworthiness challenges that SMEs and MSMEs often face. It can be achieved with the use of technology and innovative financial products. 

Do you think that the government’s Digital India initiative has had a positive impact on fintechs and MSMEs especially in rural India? If so, why?

The “Digital India” campaign has undeniably made a positive impact on the SME and MSME sector as a whole. There are several reasons for this, one of which is the improved internet connectivity that has greatly contributed to the rise of entrepreneurial spirit in the SME and MSME industry. Another significant factor is the advancement in financial inclusion. Initiatives like Jan Dhan Yojana have led to a substantial increase in the number of bank accounts in rural India. 

Fintech companies have seized this opportunity to offer a wide range of financial products and services, thus promoting financial inclusion. The Digital India campaign has been a blessing for SMEs, MSMEs, and the fintech sector in general. Rural India has certainly reaped significant benefits from this initiative.

What are your observations on women entrepreneurs in the SME and MSME domain seeking loans? What is the average loan size they apply for, and what are the NPAs in this category?

Despite the government’s efforts to increase women’s participation in the lending industry, the numbers are still significantly lower compared to men. Specifically, when it comes to obtaining loans for SMEs and MSMEs, women encounter various obstacles. These challenges include a lack of collaterals, inadequate financial knowledge, and lenders perceiving them as higher risks.

The average loan sizes for women entrepreneurs in the SME and MSME domains vary greatly, depending upon factors such as the industry and the specific lending institution. In a developing economy like India, these loan sizes can range from ₹10,000 to ₹10,00,000. 

Research has shown that women entrepreneurs generally have lower rates of non-performing assets (NPAs) compared to their male counterparts. This is because women tend to be more cautious in managing their finances. 

What hesitations do micro and MSME entrepreneurs have about using technology for loans or online transactions? How can we build their confidence in digital, cashless, and paperless transactions?

Micro and MSME entrepreneurs frequently express reservations about utilizing technology for loans and online transactions. These concerns can be security worries and a lack of trust. There is a fear of cyber fraud and data breaches, often resulting from a lack of trust in digital platforms due to past negative experiences. 

Additionally, a lack of digital literacy poses a challenge, with limited knowledge and unfamiliarity with smartphones acting as deterrents. There is also a perception that digital platforms are difficult to use. Moreover, users sometimes worry about hidden fees or charges associated with digital transactions. There is also a misunderstanding regarding the costs versus benefits of adopting technology, which discourages people from opting for digital transactions.

When it comes to building confidence in terms of cashless transactions, several approaches can be taken. One such method is through education and training, where individuals can be provided with the necessary knowledge and skills to engage in cashless transactions. Workshops on digital literacy can also be conducted to enhance understanding and proficiency in this area further. Additionally, it is crucial to effectively communicate the security measures that are in place to ensure the proper implementation of paperless transactions.

With online fraud increasing, besides public awareness campaigns, what additional measures can the government, financial institutions, and regulators implement to protect the growing online financial services ecosystem?

To combat the increasing threat of online fraud in the financial services ecosystem, it is necessary to have a multifaceted approach. In addition to raising public awareness campaigns, stakeholders including the government, financial institutions, and regulators can adopt multiple measures. These may include implementing enhanced regulations specifically designed to combat online fraud.

Milestone Alert!
Livemint tops charts as the fastest growing news website in the world 🌏 Click here to know more.

3.6 Crore Indians visited in a single day choosing us as India’s undisputed platform for General Election Results. Explore the latest updates here!

Published: 07 Jun 2024, 08:44 AM IST