FinTech and MSME alliance: India a favourable market for this collaboration

Every two out of every five formal MSMEs in developing countries are either neglected or unserved by banking firms, causing a total credit gap of almost USD 5 trillion, or 1.3 times the level of MSME lending currently in place. FinTech innovations have changed the financial landscape and how it functions while also thriving in the space they have created over the past ten years, disrupting the traditional finance sector and improving consumer experience. Between 2011 and 2017, the Global Findex estimates that 1.2 billion additional customers have access to formal financial services, many of them thanks to FinTech. A large portion of these profits was made possible by fintech solutions, such as those provided by mobile money companies. People’s livelihoods and financial resiliency increase when they are financially included, thanks to FinTech and MSME Alliance. This is crucial for minorities in particular, who have fewer chances and systemic obstacles than a powerful rich segment of society. Because of the tremendous rise in mobile penetration, digital credit and funding are the alternatives to close the credit gap that are growing the fastest. The rapid growth of digital credit has provided a fantastic opportunity to reach underserved people and MSMEs. How did FinTech solutions and MSMEs came into the picture in India? It started with the banking department began seeing an unusually high volume of calls and inquiries from clients around the country in November 2016. The sales staff ramped up, making it difficult for the product team to keep up with the excessive demand. Many people were impacted by demonetization in various ways. However, owners of small and medium-sized businesses endured the heat the most. Due to the discontinuation of the Rs. 500 and Rs. 1000 notes and the lack of smaller denomination notes, a market that relies heavily on cash, they were forced to use digital payment systems in order to continue operating. Overnight, a significant number of entrepreneurs had to establish bank accounts and joined the official financial system. Due to a variety of reasons, including their inability supply identity documentation, lack of collateral, lack of credit history, etc., big banks and financial firms generally overlook the significance of micro, small, and medium-sized enterprises (MSMEs), which are crucial to a nation’s economic structure. FinTech businesses made the decision to enter this sizable industry and attack the issue head-on. They are not only bridging the disparity between lenders and borrowers, but they have also developed novel strategies to upend the current quo and create a win-win scenario. The establishment of KYC information and pre-approval requirements for loan disbursal may be their greatest benefit. Current scenario and future prospects: Banks have also begun to realize that FinTech firms are resources rather than competitors. In order to increase their own effectiveness, they are partnering with fresh businesses that provide original solutions. For instance, by implementing CustomerXPs AI software, ICICI is now able to develop customer profiles, forecast customers’ future product purchases, and analyse relationships with current customers, providing better data to the bank’s customer care division. India is undoubtedly a desirable market for a FinTech and MSME collaboration. MSMEs generate around 8% of the GDP, 40% of all exports, and roughly 45% of manufacturing output. Numerous partnerships like DBS Bank-CredAble, Kotak Mahindra Bank-Pine Labs, Federal Bank-CredAvenue, Axis Bank-Ezetap, IDBI-U GRO Capital, HDFC Bank-Paytm, SBM Bank (India)-Lendingkart, ICICI bank-Niyo, and others have taken place recently and over the past five years or more, with the majority of them focusing on digitising credit disbursements to micro According to estimates from the World Bank, India’s MSMEs have a credit gap of $380 billion, whereas statistics from the Reserve Bank of India shows that MSMEs presently account for 10% of total bank credit overall. Currently, 67% of traditional financial institutions are experiencing the heat, and 84% of them are suffering the disruption. In the next three to five years, 95% of traditional financial institutions are expected to increase their fintech partnerships. It is impossible to exaggerate the significance of MSMEs as a notable economic engine and a fundamental source of new business. Fintech can also reach a big market of untapped or undertapped populations. Up until now, India’s Tier-I and Tier-II urban centres have benefited greatly from this specific advantage of incorporation. Enhancing for the general market and addressing issues like the lack of financial and computing knowledge and burdensome administrative practises are of utmost significance. Additionally, a fintech association is solely responsible for being able to preserve relationships with SME clients notwithstanding wrongdoing. The problem of delayed payments in funding, particularly in the MSME sector, is equivalent to having a risk that is unavoidable. But the secret is looking at the big picture, making sure that relationships improve, and staying strong. In addition, there is a lot of interest from outside investors in the Indian fintech sector since they want to take advantage of the country’s consistently growing GDP. Fintech and MSMEs are collaborating more and more as a result of initiatives like “Digital India,” “Make in India,” the ongoing demonetization effort, and the desire to make India a paperless economy. The author is the Managing Director, India Head, Foxhog. Views are personal. Read all the Latest News , Trending News ,  Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.