Credit and Finance for MSMEs: Adoption of digital lending platforms among small businesses post-Covid has accelerated even as traditional banking channel has remained a challenge for a vast number of credit hungry micro, small, and medium enterprises (MSMEs) in the country. The digital route to secure instant credit has helped the MSME loan book of digital platforms to swell from last year. Internet penetration and growing adoption of affordable smartphone devices coupled with digital lenders plugging the information asymmetry gap have also pulled traditional and new age borrowers from metro cities and India’s hinterland towards the digital channel.
“Indian MSMEs have been growth capital constrained for decades but unfortunately, formal credit sources have accounted for under a fifth of MSME debt capital needs, which has led to most small companies relying on informal credit sources. The move to digital has helped create access to capital for some of those smaller companies, who were hitherto reliant on informal credit, often at usurious rates,” Utkarsh Sinha, Managing Director, Bexley advisors told Financial Express Online.
For instance, Indifi launched by former venture capitalist Alok Mittal in 2015 saw loan disbursals decline by 30 per cent post-Covid last year before it crossed the pre-Covid disbursal value by Q3 2020-21 after the lockdown ended. The company has so far disbursed over 35,000 loans across more than 650 cities and over 12 industries with a network of more than 20 lenders. Even during the pandemic, Indifi disbursed 20 per cent loans to businesses who had no credit history while more than 45 per cent disbursals were to businesses who didn’t own their property and another 20 per cent were to businesses with less than two years of operations.
“Small businesses with a lack of digital footprint have always found it difficult to procure credit from traditional lenders. The pandemic has amplified this significantly, leading to lesser income and bank balance for small businesses. Also, businesses in Tier-II and Tier III cities would’ve found difficulty in accessing financial institutions who stress more on physical outlets,” Mittal told Financial Express Online.
In contrast, for around eight-year-old small business lending platform NeoGrowth Credit, which has served and engaged with more than 85,000 businesses so far and currently has over 20,000 active customers, the Covid stress didn’t have any material impact on the strength of the company. The company had disbursed around Rs 1,450 crore in FY20 while the growth in its assets under management had remained flat over FY21 since loan originations were impacted by Covid disruption. Nonetheless, “March’21 exit run rate for loans given was upwards of Rs 150 crores. The coronavirus pandemic led to a huge expansion of digital payments across the industry and NeoGrowth is well-positioned to leverage this opportunity. We had Rs 1,323 crore AUM as on March 31, 2021 and the total disbursement of around Rs 6,300 crore has been done from inception till FY21,” Arun Nayyar, CEO, NeoGrowth Credit told Financial Express Online.
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More so, digital lending platforms have also been engaged with the government’s Emergency Credit Line Guarantee Scheme (ECLGS) that was launched last year post-Covid as part of the Rs 20 lakh crore Atmanirbhar package. The government had recently announced a three-month extension of the scheme to September 30, 2021, from June 30, 2021, or till guarantees for an amount of Rs 3 lakh crore are issued under the fourth revision of the scheme dubbed ECLGS 4.0. Finance Minister Nirmala Sitharaman had last month extended its limit by 50 per cent to Rs 4.5 lakh crore. The minister had said on June 28, 2021, that the government had disbursed Rs 2.69 lakh crore to 1.1 crore units by 12 public sector banks, 25 private sector banks, and 31 non-banking financial companies.
“Eko helped small businesses sign-up to ECLGS last year, however, the decision to lend to those businesses was solely by the banks working with the government on ECLGS. Eko registered over 1,000 small businesses for ECLGS and the partnering bank was State Bank of India,” Abhinav Sinha, Co-founder, Eko India Financial Services told Financial Express Online.
The company had disbursed nearly $400 million between 2016 and 2020 to small businesses while it currently disburses about Rs 125 crore monthly. “We plan to disburse Rs 2,000 crore in FY22 and the number of customers we plan to onboard is 6 lakhs. Eko has been in the financial services space since 2007 and running a pilot on lending for a very long time with high disbursement but the loan book was small. Now Eko is officially expanding its lending business with a primary focus,” added Sinha.
Now with the third wave lurking, lending platforms are hoping for digital lending to get accelerated. “In case there is a third wave, there would be increase in demand for loans from MSME as now they are having a pre-planned structure for their business model. We are targeting a loan amount of 1 crore per month in the upcoming financial year for helping the small businesses and MSME in need,” Shams Tabrej, Founder and CEO Ezeepay told Financial Express Online.