Indian Fintechs: Addressing the Core Problems of SMEs

04 Feb 2022

Small and medium-sized enterprises (SMEs) have been driving the economies worldwide, especially speaking of emerging markets in developing countries. Besides job creation, SMEs are also pitching in the global economic development.

The number of informal SMEs in India is significantly higher than the formal ones. However, access to finance for SMEs is a key constraint in their development. 

As per the estimate by the International Finance Corporation (IFC), nearly 40% of the formal and most of the informal SME firms have huge unmet financing needs. It is achievable only by helping SMEs have easy access to finance and credit.

As per a report, the credit deficit faced by the Indian SME sector is nearly around 16 lakh crores. Traditional lenders have not been able to bridge this gap and hence Indian SMEs are not able to realize their true potential. 

1. Finance Gap

  • Due to a huge demand vs supply gap 

Demand for small business loans has been more than supply. And banks rejecting their loan applications have taken away a lot from the available support system.

  • Due to risks with lending

The SME lending environment is seen with risks making them synonymous with financial fragility. Banks and other financial institutions fail to identify SMEs with reliable credit history which makes it difficult for them to underwrite credit.

  • Due to high-interest rates

Financial institutions approve only small figures and that too at high-interest rates. This decreases the profit margin for SMEs which they can utilize in further expansion.

  • Due to cumbersome process

Loan sanctions in banks and other institutions involve a lot of documentation, pretty big analysis, and hence massive time. It may take months for a loan to be sanctioned from the date of file submission. This deprives SMEs of timely finance. And when the SME sector involves some companies with seasonal profits, an entire season may be missed. 

2. Credit Gap

Since SMEs are not recognized with any assets or reliable credit history, they do not get a credit line for raw material purchases or a credit time for manufacturing a product and bringing it to selling shelves. 

Startups, early-stage businesses, services, and manufacturing have seen the maximum underserving with a lack of the credit line. 

3. Lack of Advisory and Policy Support

Traditional financial institutions fail to provide finance for SMEs due to a lack of diagnostics, implementation and policy support, knowledge of good practices, and a lack of competitive analysis across different options. 

4. Lack of Business-Specific Technologies 

Each business, its needs, goals, and growth objectives are different. Traditional lending platforms fail in providing customized solutions.

Seeing obstacles as opportunities, digital lending solutions have been unlocking diverse sources of capital. They identify the specific needs of diverse SMEs and conflate technology with financial services.

Their digital lending solutions using technologies like cloud computing, ledger distribution technology, artificial intelligence, machine learning, data analytics, and others have made data collection from reliable sources, its integration and processing faster than the traditional systems.

“India has the highest FinTech adoption rate globally of 87% which is significantly higher than the global average rate of 64%.” This speaks volumes of how the digital lending system is helping the SME sector thrive. 
FinTechs have not only made finance available for SMEs but also enhanced their digital footprints. With its deep understanding of SME business needs, Oxyzo Financial Services has been a great helping hand. FinTechs like Oxyzo Financial Services are not just the initial providers but they are paving way for sustainable growth and progress.

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