How MSMEs can leverage data science and AI

MSMEs, despite being hit hard by the COVID-19 pandemic, hold the key to an inclusive and sustainable economic recovery. Here’s how it can use AI and data science to solve some of the issues plaguing the sector.

How MSMEs can leverage data science and AI

Monday October 04, 2021,

4 min Read

There is hardly a sector today that does not use data for decision-making. From large manufacturing companies to the government and startups, data has become a must-have tool to power growth. However, one sector that has remained slightly behind the curve on data and AI is the micro, small, and medium enterprises (MSMEs).


Given the vital importance of MSMEs in our country’s economy, it’s high time the benefits of AI be reaped by our small entrepreneurs as well. The MSME sector contributes 30 percent to India’s GDP and is among the biggest job creators, employing over 110 million people.


The sector, despite being hit hard by the pandemic, holds the key to an inclusive and sustainable economic recovery. This makes it worthwhile to understand and address major challenges faced by the sector and look beyond policy support to revive them.


There can be multifarious uses cases for AI among MSMEs, ranging from customer profiling, predictive maintenance, advertising, marketing, customer engagement, etc. But all these applications require data — the critical backbone on which AI is built.


As a first step, MSMEs should start investing in gathering and capturing data, which could help them build AI applications.


The good news is that MSMEs already generate huge volumes of data daily, which includes data of transacting parties, sales on credit, payments, reminders, etc. This data is a highly valuable resource in this digital age, and can act as a raw material for the development of innovative products or services.

It would not be wrong to say that the road to recovery of the MSME sector is paved with data. Data can provide the fuel to power better and faster decisions, and improve their resilience at this time of economic uncertainty and beyond.

Tech startups are increasingly leveraging technologies in data science and AI to offer business solutions that solve unique problems of MSMEs. They are fast emerging as technology partners of MSMEs looking at new-age solutions that are based on data and analytics to improve operational performance.

These firms work on the data generated by MSMEs using ML to create applications/new features that further simplify business processes. This may include provisions to allocate cashbacks, prevent payment frauds, facilitate greater understanding of users (their demography, suppliers, customers, etc), enable informed product decisions by end consumers/merchants.


Using data science tools, tech startups are building models that can enable faster credit recovery by small merchants. This is done by automatically suggesting payment due dates to customers and sending automatic collection reminders to merchants.


To perform this task the digital tool uses data-powered features that calculate relevant dates based on the available data without the merchant having to work it out. These applications are further powered by fraud detection systems to detect frauds in payments and weed out non-relevant transactions.

Digital business solution providers analyse the MSME data keenly to understand transactions that lead to the identification of fads and trends. Once the insights around fads are discovered and validated, work begins on them to create features that can help MSMEs to engage more meaningfully with customers.

Intuitive user interfaces that offer users an individual and inspiring user experience are a prerequisite for facilitating the faster adoption of digital business tools. An application with a bad user interface can make the MSME/user feel the platform is complicated, difficult to access, and not the right fit for them.


To address this problem, new-age startups are again relying on data and using analytics at each step for even making a small change in the user interface.  


Data is being increasingly leveraged by digital startups to design applications that meet the varied needs and requirements of MSME user categories depending on their business objectives. For example, if the focus of an MSME is on retention, data of MSMEs who are retaining more, their rate of conversion, and categories they are coming from, etc., are analysed to design new or modify existing applications.


Users engage with the app in different ways. This data is captured and analysed by the technology service provider to further refine the application/software to make it more user-friendly and hence support the MSME business.

Summing it up

There is merit in the phrase ‘data is the new oil’. In this era of the digital revolution, data can be put to work to effectively solve the myriad problems of India’s MSME sector where technology adoption is less-than-adequate.


MSMEs must embrace digital solutions that are built on technology, data, processes, and people to power better and faster decisions and enrich customer experience. As the key to a successful business is true, long-lasting customer engagement that increases conversion and returns.


Edited by Saheli Sen Gupta

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)