Micro, small, and medium enterprises (MSMEs) are an important part of the economy in India, with around 6.33 crore MSMEs producing around 30% of India's GDP, 45% of its exports, and providing employment to a large number of people. MSMEs often operate with relatively lower capital costs than larger industries and can be instrumental in industrialising rural and underdeveloped areas. They can also help to reduce regional imbalances and ensure a more equitable distribution of wealth. However, MSMEs also face challenges, such as business financing, small financing, market access, and regulatory barriers that can affect the smooth functioning of a business. Governments and independent Non-Banking Financial Companies (NBFCs) often implement policies and programs to support MSME finance and address these challenges.
Digital Financing is leading industries towards simpler ways to finance businesses. Digital MSME financing refers to the use of digital technologies, such as the internet and mobile apps, to facilitate this process. Here are a few more detailed ways to access business financing for smooth business operations.
In recent years, there has been a growing trend towards digitization in the MSME sector, with many businesses using digital technologies to improve efficiency, increase opportunities, and boost revenue. One way that MSMEs are adopting digital solutions is through the use of short term credit, which can be used to invest in technology and digitise their enterprises. Digital MSME finance partner platforms like Bizongo can connect MSMEs with lenders, allowing them to apply for loans and other forms of financing online. They also help to reach out to remote and rural customers and close the communication gap between buyers and sellers. In addition, Bizongo’s tech platforms have made it easier for companies to launch their operations and scale up in response to changing client demands. These platforms allow both existing financial institutions and startups to quickly develop and deploy new digital products and services without making large investments in technology infrastructure.
Digital lending has significantly impacted the MSME sector in India by providing access to short term credit, business financing, and small financing for small businesses that may not have had access to traditional lending sources. Digital lending partners like Bizongo are able to assess a borrower's creditworthiness using data analytics and AI, which makes the lending process more inclusive and eliminates the need for formal documentation and credit history. Digital lending has also increased the reach of credit, allowing small business owners in remote areas to access loans that were previously only available in physical outlets. This has been made possible through the use of digital solutions such as E-NACH, CKYC/OKYC, E-sign, and video sign. The cost benefits of the lack of physical infrastructure are passed down to borrowers, resulting in a lower cost of capital for small businesses. The Account Aggregator framework introduced by the Reserve Bank of India further simplifies the process of disbursing MSME finance digitally, making it more secure, transparent, and efficient. The shift to digital lending is changing the way MSMEs access business financing and is empowering the underserved through capital inclusion, benefiting the lending ecosystem, small businesses, and the economy as a whole.
Direct Benefit Transfer (DBT) is a system of delivering government benefits and subsidies directly to the bank accounts of eligible beneficiaries. The aim of DBT is to improve the delivery of welfare and subsidy schemes by streamlining the process and ensuring accurate targeting, deduplication, and reduction of fraud. DBT schemes can provide benefits in the form of cash, in-kind support, or a combination of both.
It is important to support MSMEs, as they play a vital role in the economy by creating jobs and driving innovation. Providing access to finance is a key component of this support, and the Credit Guarantee Scheme for Subordinate Debt and the Self Reliant India Fund are both promising initiatives that could help to improve the financial situation of MSMEs in India.
The NSIC is a government-owned enterprise in India that works to promote and support the growth of MSMEs. NSIC has established an online Finance Facilitation Center, which allows MSMEs to access credit through web linkages between the NSIC portal and the portals of partner banks.
This method allows MSMEs to raise funds from a large number of people, typically through an online platform.
The Government of India, NBFCs and digital MSME finance partner platforms like Bizongo are gunning for digital lending. The use of digital technologies can help to streamline the process of obtaining financing for MSMEs, making it faster and more convenient. It has the potential to significantly impact the MSME sector in India by providing access to short-term credit, business financing, and small financing for small businesses that may not have had access to traditional lending sources. It has also empowered the lending ecosystem with a more efficient and cost-effective way to lend to small businesses. Overall, the shift to digital lending has had a positive impact on the economy by supporting the growth of small businesses and helping to drive economic development in India.