Financing has been a perpetual problem for the MSMEs in India. Despite their significant contribution to GDP, exports, and employment, lack of finance remains a major bottleneck in the growth of MSMEs. Per the RBI, the total addressable demand of finances by the MSMEs in India stands at $490 billion. In contrast, the supply is only $192 billion.
There are many reasons why MSMEs struggle with securing finance, some of them are: -
1. Collateral requirements by banks and lending institutions
2. Lack of formal data for credit assessment
3. Complex application procedure
4. Longer turnaround time for loan disbursement
5. Higher interest rates
Over a while, with the advent of fin-tech, digital lending has become the flagbearer of change for MSMEs. There has been a considerable growth of MSMEs in India amidst a favourable positive environment and progressive Government initiatives. Given the easy access and hassle-free process for securing a loan, digital lending is increasingly becoming popular amongst MSME borrowers compared to traditional lenders. Technological evolution has also been promoting the rise of alternate data.