How technology can help fill the credit gap among Indian MSMEs

An analysis of the Indian business growth story would be incomplete without mentioning the backbone of its economy - the micro, small, and medium enterprises (MSMEs). Despite making up for the majority of the country’s trade and commerce, the MSMEs are under-looked by the traditional financial system and resultantly credit-starved. 

The country’s apex voices - the Indian government, the Reserve Bank of India (RBI), and the top bureaucrats have time and again spoken about the need to infuse capital enough for MSMEs to survive and thrive, but the path to encourage MSMEs is rather long and untrodden. 

Embracing technology could serve to be that catalyst needed to compound the positive impact of innovation and focus on India’s MSMEs. Besides streamlining processes, making day-to-day business activities cheaper and bringing structure and technology holds the key to ensuring the cycle of credit to MSMEs via investment vehicles takes a formal shape. 

The three main steps to filling the credit gap for the underserved sections of the society include understanding what technology can do, why it needs to be trusted, and how it can be leveraged. 

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Technology needs to be understood 

Technology has been a buzzword for all companies looking to innovate and introduce a new way of working out business practices. In the Indian business ecosystem, technology is slowly taking center stage to ease processes and communication. However, a long road remains to be tread for the first steps to survival and growth i.e. raising capital in the form of credit, loans, and advances. 

For MSMEs to realise the full potential of technology in their everyday capital raising and sustained credit flow, they need to take the inceptive step -- identify a technologically-advanced company to meet their requirements.

With the government and the RBI stressing financial institutions in India to meet the credit demands of the MSMEs, the lenders have been partnering with fintech companies that are bringing best-in-class and globally-followed practices to the country. These partnerships have paved a way primarily for MSMEs to explore ways to meet their credit requirements. 

MSMEs no longer need to undergo long banking processes. They can now explore various options by multiple technology-advanced players that help them raise capital via traditional credit companies or banks enabled by technology if they would like, or through an entirely new company in the lending space with nuanced offerings. 

The need to trust technology

The second step for MSMEs is to trust the technology. India has leapfrogged its path to trusting its mobile phones with banking apps and passwords that are key to transferring thousands and lakhs of rupees. But the country still has a long way to go ahead in terms of trusting the technology for end-to-end processes, investments, and returns. 

‘Trusting technology for everyday business processes will be game-changing’ -- this needs to be understood beyond theory. Each process, from winning a contract, raising credit, executing the contract, dispatching finished goods, and invoicing, it can be enabled using technology.

Technology-enabled processes will significantly bring down the costs involved. 

This wasn’t on the plate for many businesses in India till at least a decade ago. With the advent of technologically-advanced enablers in the last few years, streamlining a business process for cost reduction has come as a silver lining for MSMEs who are mindful of their spending much more than companies in other segments. 

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Using technology creatively

With the increased pressure on embracing technology to fill the credit gap among small and medium companies, an important factor is often overlooked -- using technology creatively. 

MSMEs need to evaluate which processes need more human touch and where one can omit human interference. Indian MSMEs are still hesitant in tailor-making technology to suit their requirements. An example is using data tools to derive multiple quotations for the sale of goods or services. 

Using data insights can enable MSMEs to compete for better pricing and derive higher value for their time and effort. Imbibing artificial intelligence and machine learning will most likely open new unexplored avenues -- a challenge that most MSMEs face. 

As Indian businesses are getting introduced to newer challenges of the global world, they need to be prepared to grab opportunities to expand and partner with others. Inculcating technology in business processes to complete an end-to-end cycle will help Indian companies develop an edge over other worldwide competitors.

With a robust spine of young adults, high acumen, and willingness to adapt to a global world, the country is ripe for a scathing rise in business opportunities -- MSMEs can tap this opportunity to produce multifold results with the simple formula of embracing technology. 

Although technology is an enabler, the real magic will happen when we will use technology to create a new market opportunity and fully utilise it to benefit the entire ecosystem.