Micro, Small and Medium Enterprises (MSMEs) are the backbone of India’s economy, contributing significantly to the country’s Gross Domestic Product (GDP), employment generation and export earnings. However, access to finance remains one of the biggest challenges faced by MSMEs in India. They often lack the required CIBIL, collateral and required credit history, making it difficult for them to secure loans from traditional banks. This has resulted in a significant portion of the MSME sector being left unbanked and unable to access credit.
However, the emergence of India’s robust financial service technology ecosystem has the potential to revolutionize the MSME financing landscape. The growth of NBFCs, fintech companies, digital banking, and mobile financial services has created new opportunities for MSMEs to access financing.
The Indian government has also taken steps to promote financial inclusion for MSMEs by launching various schemes, such as the Pradhan Mantri Mudra Yojana (PMMY), to provide loans to small businesses and Credit guarantee schemes. Recently, Finance Minister announced a revamped credit guarantee scheme for MSMEs of Rs. 9000 crores effective from 1st April 2023.
Benefits of Fintech ecosystem
One of the key benefits of the financial service technology ecosystem is the ability to provide loans to MSMEs in a fast and efficient manner. Traditional banks often take months to process a loan application, while NBFCs and fintech companies can provide business loans within few days. This speed of access to credit can be crucial for MSMEs and help them capitalize on time sensitive opportunities. For Example, recently in the budget 2023 government announced that they will set up Entity DigiLocker for MSMEs. It can act as a one stop solution for storing and sharing KYC documents, financial statements, Income Tax Returns etc. of the MSMEs. This will help in fast-tracking the loan application process because banks, NBFCs and other financial institutions will be able to directly view the documents.
Another way in which the financial service technology ecosystem is helping MSMEs access finance is through the use of digital platforms. These platforms bring together MSMEs, investors and lenders, providing a marketplace for MSMEs to access finance. This allows MSMEs to present their business plans and financial projections to a wider audience, increasing the chances of securing funding. Digital platforms also provide transparency and accountability in the lending process, helping to build trust between MSMEs and lenders.
Thus, the growth of India’s financial service technology ecosystem has the potential to revolutionize MSME financing. The ability to provide loans in a fast and efficient manner, use of alternative data sources, the emergence of digital platforms, growth of digital banking and government initiatives, all have the potential to increase access to credit for the MSME sector. This, in turn, could help to boost the growth and development of MSMEs, contributing to the overall growth and development of the Indian economy.
About Red Fort Capital
Red Fort Capital offers quick business loans for machinery to assist businesses in investing in time-sensitive opportunities. In general, lenders have a difficult time estimating the conversion of an equipment investment into a net positive cash flow. Furthermore, business credit must be closely monitored. As a result, it takes them more than a month to process a loan for machinery. Whereas Red Fort Capital NBFC funds machinery and equipment loans within 7 days with flexible repayment terms and conditions. It also provides 100% financing for equipment and machinery by taking additional collateral.