How tech-powered loans are empowering MSMEs keep pace with a rapidly-changing world

In today’s digital era, consumers expect the highest level of service–be it their food or grocery delivery, ticket bookings, cab bookings, and even their financial needs. ‘Speed’ has become the key ingredient today, and technology, specifically fintech, has made our lives convenient and more accessible. For India’s small businesses, digital and technology intervention in lending services has satiated the need for speedy credit with a quick loan application journey.

Fintech in the driving seat of quick loan journeys 

The loan application process--once a tedious and time-consuming task--has now undergone a remarkable change. MSME borrowers can have their loans sanctioned in just a few minutes at their comfort. In the NeoGrowth MSME Business Confidence Study 2023, the digitally-enabled loan process took the top spot for MSMEs when choosing a lender.

The rapid country-wide development of internet infrastructure has been a major contributing factor to the digital and technology boom among MSMEs. This has increased the number of active users of digital financial services. 

Tech tools are key 

Timely access to credit has been a long-standing challenge for MSMEs seeking business loans, often hindered by complex documentation requirements and a dearth of transactional history. Among the tech innovations is the introduction of a consent-driven digital locker system, DigiLocker, which heralded a new era of possibilities. An inherent advantage of DigiLocker is that data ownership and sharing rights are with the individual who uploads the documents, rather than public or private organisations.

When applying via a regulated digital lender, individuals, and businesses must undergo eKYC verification with Bureau (CIBIL) checks, bank statements, ITR, and financials forming essential components of the documentation process. They can submit their information online and access loans in mere minutes, without the hassle of physical documentation. 

This technology, when combined with transactional data from various digital payment modes, empowers lenders to swiftly review credit history and sanction loans with promptness by using data analytics and AI/ML models of underwriting. This enables lenders to make better-informed data-based lending decisions, thus reducing the risk of defaults and fraud.

Customer data protection and consent management are central to India’s evolving digital ecosystem. Now, with account aggregator and its strong consent mechanism, lenders can access a borrower’s financial data in a secure manner, further enhancing their ability to provide the best possible lending experience by analysing large volumes of data in real-time, while simultaneously providing the borrower full control over the data they share with the lenders. 

Digital lending becoming mainstream for Indian MSMEs

Digital lending is the revolutionary mix of technology and digital, which is helping to ease the transition from traditional loan application processes to assisted digital loan journeys and simplifying the lives of borrowers. 

Platforms like Unified Payments Interface (UPI), which allow nearly a billion transactions a month, have transformed India into a cashless society and have put India on the global map of Fintech. Supportive policies, digital platforms, campaigns, and incentives to both loan providers and borrowers are increasing the penetration of digital lending among India’s small businesses. 

The road ahead 

The fast pace of digitisation, API-based data availability to help credit scoring, and the increased receptivity to digital lending are the primary factors leading this growth. 

The future of technology in the lending industry is promising, and one can expect more innovative solutions in this space.