According to the segmentation done by the lending institutions, retailers under the organised and unorganised sector fall under the category of Small and Medium Enterprise (SME). Retailers under the organised sector include large format showrooms like Manyavar (readymade garments chain) to technically speaking, Big Bazaar. The unorganised sector, on the other hand, includes smaller establishments like pan shops and even the local chemist around you.
For the sake of this article, we will focus on the unorganised sector, the sector, which we at SMECorner believe, has never been the focus area for traditional financial institutions for credit products. Their reasons for not focusing on the unorganised segment have been many where they are governed by many regulations that inhibits the chance of approval for
a loan; the small ticket size of loan from the unorganised retail sector did not warrant a special team at the bank; also, the small entities often could not submit the required documents imperative for the loan etc.
From a retailer’s point of view, ambiguity about the process for loan application & approval and the time required for multiple visits to the bank branch to follow-up on the loan have been an issue.
India has approximately six million kirana shops. These shops survived the heavy competition from multinationals because of the excellent customer relationship
and quick instant delivery services that the shops offer. They continue to be managed by the owner who controls all financial transactions.
The typical credit need of these shops is for bridging the gap in the working capital, short term, and urgent. Second most important need is usually for upgrade and growth plans, which again is timed according to their trade cycles and hence have tough deadlines.
For any credit application, traditional banks, or even other NBFCs take average time of three to four weeks to process an application form. What’s worse for a retailer is that there is no immediate way to know whether their loans would be approved and what will be the possible loan amount. Many a times, since the owner controls the cash counter, he or she
has to shut the shop to visit a bank branch, leading to loss in business.
However, with governments push for paperless transactions and rise in the number of startups in the modern lending space, the unorganised sector retailers are getting the attention that they deserve. Many new-age lending firms like SMECorner are focusing on eliminating the two-key hindrances that SMEs face -- physical documentation and ambiguity
around the loan approval.
Most of the new-age lending firms have developed algorithms and sector-based credit approval policies to facilitate loans for the unorganised sectors. This coupled with the widespread use of Aadhaar, e-kyc and a push from the government for cashless transactions has made it much easier for financial firms to process loans. Today, a small and medium retailer, depending on his need, documents available and willingness to use collaterals can choose from a plethora of choices available.
We believe it is just the tip of the iceberg, the unorganised retailers have been undergoing a lot of change as well. The demographics of the shop owners is changing towards younger, educated class. They clearly have more exposure to technology and are implementing it for everything from warehousing to accounts. We expect specialised and boutique
shops to be the new trend and the new-age lending seems all set to support the growth.