Credit and Finance for MSMEs: The next wave in fintech will be the rise of cash flow-based lending to MSMEs, said V. Anantha Nageswaran, the Chief Economic Advisor to the Government of India. “The lending potential of about Rs 3 trillion next year itself for MSMEs will be based on GST Invoices and bank statements made available on account aggregator and banks adopting OCEN (Open Credit Enablement Network).”
Nageshwaran was speaking at the third edition of the Global Fintech Festival (GFF) in Mumbai that was presented by the Reserve Bank of India, National Payments Corporation of India and other organisations.
One of the biggest hurdles to the growth of India’s micro, small and medium enterprises has been access to finance. According to the UK Sinha Committee report, the overall credit gap in the MSME sector stood at Rs 20-25 lakh crore.
Sharing insights on the credit gap, Nageshwaran said, “it is not just about access to loans, it is also about access to working capital. A part of the solution comes from enabling financial innovation which enables non-collateral-based lending while also enabling large enterprises to pay their bills on time.”
Here Nageswaran is referring to GST-based bill discounting wherein large businesses accept the invoices from their MSME sellers on GST, enabling the latter to get their bills discounted from the financial institution or the bank, in turn helping them get paid on time and ensuring liquidity for MSMEs to run their operations.
The potential of cash flow-based lending to enable financial inclusion is huge, however, Nageswaran also cautioned about its potential to abuse borrowers. “There is a need to make sure that cash flow-based lending apps do not exploit borrowers especially if they are financially illiterate, that is why making these things available in local languages is critical to bridging the financial divide and the digital divide.”
India is the third largest fintech ecosystem in the world pegged at $31 billion in 2021. It is expected to increase 30-32 times in the next 7-8 years to about $1 trillion by 2030, he said.