Small industries (SME / MSME) have a very important contribution in the country’s economy. Speed in this sector is very important for the economic recovery after the Corona Crisis. For this sector to grow, it is necessary that technology should be included.
SMEs still rely on the old traditional methods for credit.
Due to the epidemic, this year has been very challenging for small and medium industries (SMEs). Uncertainty over the lockdown, reduced revenue, declining customers and demand turned the economic growth outlook for many small businesses negative. Now SMEs are ready for recovery in the post-pandemic situation, but it is quite challenging. In today’s time, many SMEs in India are dependent on the old traditional methods for payment, loan or loan and other financial support.
These traditional financial services methods for small and medium enterprises have created a huge gap, which fintechs are now trying to bridge with the help of technology and innovation. In the post-pandemic world, fintech has encouraged people to adopt a digital lifestyle and is helping SMEs in their recovery. Technology and innovation are at the heart of this fintech revolution. Technology is working towards filling that gap in the following areas. The government is still moving ahead with the goal of a $5 trillion economy by 2025. If this goal is to be achieved, then there should be rapid growth in SME/MSME, it is very important.
The picture will change with financial inclusion
Many SMEs still have limited access to credit and formal banking channels in India. The technology has enabled fintech players to offer their services to SMEs in Tier-II, Tier-III and rural areas at large. The integration of accounting and inventory software with payment service providers has broadened the scope of SMEs with ease of doing business. The adoption of global best practices, security, interoperability, improved UX, and ease of use of innovative solutions will add to the trust in technology as SMEs build their businesses in an interconnected world.
Digital payments are the need of the day
Banks, brands and consumers have promoted payment technology through all channels including UPI, peer to peer, digital wallets, mPOS and voice payments. Payment platforms in today’s time are not only a means of transactions but they have also helped SMEs to increase their revenue by offering zero cost EMI, EMI payment option at their convenience, BNPL (Buy Now Pay Later), cashback etc. Has also helped.
Lending (and Micro Credit) Platforms
Technology has created new avenues of access to capital. Using payment and alternative data, SMEs can access micro credit, which helps them to grow their business further. The newly emerging loan model is fast, easy and cost-effective as well as transparent. Leading analytical platforms and artificial intelligence and machine learning have provided fintech lenders with a deeper understanding of SMEs. They can establish the creditworthiness of businesses, assess risk more efficiently and disburse loans in real time.
Technology has also created an alternative source of financing such as social financing or peer-to-peer (P2P) lending. P2P lending platforms expand credit availability for SMEs, especially in situations where banks are unwilling or unable to do so. The platform brings them together with high-risk investors who have no access to SME credit.
Focus on digital KYC
With the advancement in digital KYC, SMEs can connect instantly on various fintech platforms and can avail higher credit limits through OTP based KYC. This benefit also extends to Video KYC as RBI has recently expanded the scope of Video KYC for SMEs and converted limited KYC to Full KYC. RBI has also allowed conversion of ‘limited KYC’ accounts opened on Aadhaar-based e-KYC basis to ‘fully KYC-compliant’ accounts.
Take advantage of Open Banking
Open banking is expected to change the banking industry. Technology has created a system where organizations share data through programming interfaces. It is popularly called API. It allows banks and financial institutions to effectively exchange information and serve customers better by enhancing operations and customer experience and engagement in the digital world. Using this open banking framework, account aggregators provide various value-added services, including access to e-commerce to SMEs.
Trade financing losses have to be reduced
A survey by the Asian Development Bank (ADB) of SMEs cited limited funding as a common reason why they refrain from doing business in the global supply chain. ADB estimates that SMEs in Asia face an annual trade financing gap of approximately $150 billion. Trade finance still remains a very old fashioned business. Today distributed ledger (commonly known as blockchain) technologies are in the process of modernizing it using “smart contracts”. Although it is still in the early stages. But these smart contracts can help SMEs in India to ship their “Made in India” product internationally and open up an entirely new market.
Invoice Financing or (Bill Discounting)
The rapid digitization process has enabled SMEs to use invoice financing, also known as bill discounting. Using this, SMEs can borrow money against pending invoices to meet the short-term liquidity requirements of their business. Fintech platforms are leveraging the power of automation to give suppliers faster access to short-term credit against their invoices.
supply chain finance
Another way to improve the working capital position of SMEs in which suppliers can opt for first payment of invoices at a discount. Traditional supply chain finance programs typically involve complex legal frameworks and are only capable of operating on a large scale. The technology has enabled various fintech platforms to offer supply chain finance solutions to make it effective even at the lowest level. Fintech is progressing at lightning speed. We have just started in the direction of what is possible in this matter and what is going to happen in the next few years.
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