Timely Credit: Secret Ingredient to MSMEs’ Success Post-Pandemic

The nation went into turmoil when the covid-19 pandemic emerged, and the economy took a nose dive due to the global lockdowns and restrictions that followed. In business terms, micro, small and medium enterprises (MSMEs) took the most brutal hit, and thousands were forced to shut down or adopt other means to survive and revive.

However, this disruption has revealed the more significant potential of the already popular technology, which has now taken the front seat in getting business done. In the MSME segment, this led to the advent of cross-border e-commerce, where MSME business owners can tap into the potential of selling anywhere in the world. Cross-border e-commerce has aided the growth of businesses in several ways, leading to expansion without many requirements in terms of infrastructure. Unfortunately, not many can tap into this venture on their own due to the lack of access to credit.

Boiling down to credit

Availing credit has always been a significant challenge for MSMEs. Banks require collateral to give out loans which these MSMEs often fail to provide for several reasons. MSME exporters also face the issue of long payment cycles and may often lose out due to currency fluctuations. What’s more distressful is that these companies don’t have sufficient cash to cushion themselves in times of extended payment and end up facing the brunt of losing out on business.

Insights from the Neogrowth survey revealed that 97% of businesses worried about their credit scores being negatively impacted due to the pandemic, and 40% of MSMEs had enough liquidity to last only three months. However, with technology at the helm, fintech companies have smoothened out the process of evaluating the creditworthiness of businesses to offer customized financing solutions.

The return of MSMEs post-pandemic

Some believed that many MSMEs would shut down post-pandemic. However, a survey indicated that thanks to proper support during the pandemic, these MSMEs bounced back with the help of digital fintech companies.

With the adoption of technology, 72% of MSMEs experience business growth, 66% are now entirely online, and 64% use digital mediums to interact with their customers.

By integrating technology, MSMEs can now streamline processes, reduce operational costs and adopt other tools like artificial intelligence (AI), cloud computing, and enterprise resource planning (ERP) systems that have enhanced the customer experience at significantly lower costs.

Lenders adapting to technology

Fintech firms go beyond CIBIL scores and look at the fundamentals such as the company's turnover, GST returns, and transactions to assess businesses' creditworthiness. The lending sector is being disrupted by digital lenders, who have found innovative credit underwriting models based on information like cluster area, industry, and seasonality of cash flows, to mention a few. Lenders have capitalized on AI, machine learning (ML), and big data, which has helped form a more comprehensive and detailed profile of businesses. 

Banks and non-banking financial companies (NBFCs) can deploy these technologies to determine credit worthiness at a fraction of the cost compared to the traditional methods. A more enhanced digital framework means more insights that aid decision-making when disbursing loans to MSMEs.

Conclusion 

Covid-19 had temporarily halted the demand for credit as businesses had to deal with sudden changes in the environment and consumer demand. But now, as the MSME sector revives,  demand is surging. 

Since MSMEs are considered the backbone of the Indian economy, with over 6.3 crore MSMEs, timely access to credit is the lifeblood of this sector. Apart from granting credit access to these businesses, adapting to technology is essential for companies to thrive. As we see the demand rising, continuing to strengthen this sector is the need of the hour.