Credit and Finance for MSMEs: Tiger Global and Y Combinator-backed payment gateway startup Razorpay has added a new product to their digital lending solutions for MSMEs as it looks to further tap into the credit needs of small businesses looking to recover from the Covid and overall economic gloom. Six-year-old Razorpay, a full-stack financial services company which served companies including Zoho, Facebook, Intuit, Airtel etc., has launched ‘Cash Advance’ – an unsecured line of credit for MSMEs to manage cash requirements prior to their customer payments. Currently, there are more than a dozen startups offering credit to MSMEs including Capital Float, Aye Finance, Indifi Technologies, Lendingkart, FlexiLoans etc in India.
Borrowers would be able to access collateral-free credit facility “within a few hours or instantly” with a limit of Rs 50,000 to Rs 10 lakh based on their credit history and payments history. Razorpay already offers working capital loans through its partner NBFCs and banks along with corporate cards for businesses to manage expenses. The digital lending market size in India, as per Statista, was around $75 billion in FY18 and is likely to grow to $350 billion by FY23 out of which around $100 billion is expected to be lent to MSMEs.
Multiple market studies have stressed on the impact of Covid and lockdown on small businesses to sustain their operations amid lack of demand and capital. According to analytics company Crisil, micro and small businesses have not been able to manage their working capital issues as efficiently as large and medium businesses. There are currently over 6.3 crore MSMEs, 40 per cent of which have been able to secure loans from traditional formal routes including banks and lending institutions while the rest 60 per cent haven’t been able to access easy credit.
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While the government had launched the Rs 3 lakh crore Emergency Credit Line Guarantee Scheme to benefit Covid-hit MSMEs, but it had targetted only 45 lakh businesses. “Also, under govt schemes, businesses are required to be qualified as an MSME, as strictly defined by the government to avail loans from banks,” Razorpay said. However, MSMEs including small manufacturers, e-commerce sellers and service providers required capital for ongoing expenses even before they received payments from their customers and vendors. “Razorpay’s Cash Advance offers relief by providing collateral-free loans before sales and payments happen, which ideally takes 5-15 days for small businesses,” the company added.
Loan-approved MSMEs would be enabled on the new feature with renewal in every six or 12 months along with auto-repayment options. “A number of businesses now have been facing weeks, if not months, of revenue loss due to insufficient funds thereby putting unanticipated pressure on liquidity. Most of the operational expenses are still done in cash on a day-to-day basis. So when businesses have urgent cash requirements, they often leverage personal connections with other vendors or borrow cash from informal channels,” said Shashank Kumar, CTO & Co-Founder, Razorpay. The company intended to enable up to Rs 100 crores of credit for MSMEs by the end of 2020. Razorpay has so far raised $106.5 million in funding.