Small businesses ditch banks; over half of Indian SMEs take digital loans

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Published: November 19, 2019 2:24:40 PM

Credit and Finance for MSMEs: Transactional convenience and monetary incentives to customers led to value creation for around two-thirds of MSMEs.

74 per cent of the MSMEs were extremely or very satisfied with their experience of using digital payment products/

Credit and Finance for MSMEs: Narendra Modi government’s push to MSMEs towards digital technology adoption is finding acceptance. A majority, 51 per cent of small businesses in India have adopted digital means such as online B2B lending, peer-to-peer lending etc., even as the remaining 49 per cent have remained committed to traditional routes including raising capital from friends and family, bank loans, pawnbrokers etc., according to a survey of 400 MSMEs by payment gateway firm Instamojo. “49 per cent of the respondents termed it (digital credit/loan) ‘not much valuable” or ‘least valuable’,” the survey said.

Transactional convenience and monetary incentives to customers led to value creation for around two-thirds of MSMEs as 65 per cent of the respondents highlighted easy money transfer 35 per cent), quick access (17 per cent), cashback offers or discounts (13 per cent) among the top three value offerings from fintech. “For decades, technology has been a key enabler of advances across industry and within financial services. Changes in the payments landscape are a direct consequence of technology making new ways to transact possible. Transactional convenience refers to the ease of conducting a digital payment,” Akash Gehani, COO, Instamojo told Financial Express Online.

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The survey also highlighted 74 per cent of the MSMEs being extremely or very satisfied with their experience of using digital payment products. However, around 47 per cent of the respondents said that they were able to get through only a few of the ‘critical’ including limited business knowledge, lack of technology support, complex taxation norms, lack of marketing skills apart from access to bank credit. Only 25-30 per cent have been able to run their operations smoothly challenges. “The Indian MSME sector has long faced several critical business challenges ranging from credit deficit and unskilled labour to the complexity of taxation and knowledge asymmetry,” said Gehani.

Critical challenges refer to factors which are the major growth deterrents for the sector and which most often than not cannot be controlled, for example, regulatory policies. In terms of hard to manage challenges, these are factors which can be controlled with the help of necessary resources, however lack of access or awareness can be a roadblock, he added. Post GST implementation, around 9.2 million MSMEs have been registered under it — an increase of 50 per cent from the previous tax regime. This indicates a high probability for small businesses to use business analytics tools, the survey claimed.

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