Credit and Finance for MSMEs: The UK-based fintech company Wiserfunding, which assesses credit risk of small and medium enterprises (SME), has forayed into India. The company co-founded by the veteran in credit risk analytics and inventor of the Z-score formula for predicting bankruptcy Edward Altman has launched its AI-backed cloud-based credit risk assessment tool for SMEs. Wiserfunding will look to invest $3-5 million over the coming three years to tailor credit risk models for SMEs “to reach an accuracy level above 80 per cent,” the company said as “the available models in the lending sector are not specific to SMEs, are largely non-technology based and have low prediction accuracy.”
Wiserfunding is planning to tie-up with three-four banks and around eight to 10 non-banking financial companies (NBFC) and cover 8.5 million SMEs in India through its models by end of FY21. The investment will also be made for developing technology to access multiple public and private databases to get all inputs it requires for credit risk models and to automate them similar to how the company has done in Europe.
The company’s SME Z-score backed by AI will offer credit risk assessment tools to assess the credit quality of SMEs based on their financial history as well as “publicly available structured and unstructured data such as corporate governance, management experience & macroeconomic indicators,” the company said in a statement. Wiserfunding claimed the model to be unique for giving geographical and sectoral segmentation to “maximize prediction power”.
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“Typical to any economic shock, bank lending is expected to reduce for SMEs, making it more difficult for them to survive. It will be important to have a reliable and accurate assessment of businesses’ viability and technology will be central to such analysis,” Altman said.
Gross bank credit to micro and small businesses had declined up to 7.6 per cent between March and May 2020 amid Covid impact on the economy, according to the RBI data. In comparison, credit outstanding to small businesses during the year-ago period had shrunk by up to 2.7 per cent. The outstanding amount was Rs 3.53 lakh crore as on May 22 down from Rs 3.82 lakh crore as on March 27.
The Cabinet had in June approved the distressed assets fund for MSME accounts that are NPAs, as announced by MSME Minister Nitin Gadkari. The government will offer Rs 4,000 crore support to the CGTMSE for a partial credit guarantee of up to Rs 75 lakh or 15 per cent of the credit.