What is cash flow-based loan for MSMEs and its benefits?

What is cash flow-based loan for MSMEs and its benefits?

Nov 08, 2023

Girish Khurana

Lenders over the past few years have started to acknowledge the cash flow-based approach to disburse credit to MSMEs

Alternative data sources such as UPI transactions, income tax returns, GST returns, bank statements, CIBIL score, point-of-sale data, and more are considered at the time of providing credit to MSMEs

Cash flow-based loans are generally working capital loans required for short-term to manage operational expenses in a business such as rent, salaries, administrative expenses, business travel, raw material purchase, and more

The loan amount generally ranges from Rs 20,000 or less to Rs 2-3 crore

Buy Now Pay Later, invoice-based financing, supply chain financing, co-lending, etc., are some of the collateral-free credit options for small borrowers depending upon their requirements and based on the cash flow data of their businesses

However, cash flow lending’s share in the overall lending that both banks and NBFCs do together is currently very minuscule

It requires “a lot more discipline on the part of the lender while even closer monitoring of cash flows of the unit is required for lending

“To improve the credit to gross domestic product (GDP) ratio, access to credit and cost of credit need to be addressed by lesser reliance on collateral security and greater cash-flow based lending”

RBI Governor Shaktikanta Das

Image: X.com/RBI

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