+ Leveraging on Technology for Strengthening Credit Flow for MSMES - CII Blog Leveraging on Technology for Strengthening Credit Flow for MSMES -

Starting a new business venture may be overwhelming, especially for new entrepreneurs as regulatory compliances, filing of returns, interactions with several institutions etc., pose challenges for both aspiring and established entrepreneurs. Therefore, bringing synergy in the operations of various departments/institutions and facilitating flow of information can reduce the associated time and cost burdens for businesses, especially MSMEs. 

Reforms Facilitating Growth

To facilitate Ease of Doing Business (EoDB) and encourage unfettered growth of business, the Government of India (GoI) has adopted a multi-pronged approach that broadly covers reducing compliance burdens by phasing out redundant regulations/paperwork, decriminalisation of minor offenses, permitting self-certification and ushering transparency through technology adoption/digital platforms.

Several of the EoDB reforms of the GoI have technology and digitalisation at the centre of implementation. Initiatives such as National Single Window System (NSWS) to enable investors identify and apply for the required approvals (Central/State), Udyam Registration Portal to facilitate easy registration of MSMEs, etc., have digitalisation at the foundation. Technology, therefore, has emerged as an effective conduit for facilitating EoDB and enhancing delivery of public services. 

Facilitating EoDB has also been underscored in the Union Budget, 2023-24. Several initiatives have been proposed in the Budget viz., introduction of Jan Vishwas Bill to amend 42 central acts, PAN as the common business identifier for all digital systems, Unified Filing Process to obviate the need for submission of repetitive information to various government agencies etc., among other initiatives, to facilitate trust-based governance. 

The Digital Economy

The Public Digital Infrastructure in the form of ‘India-Stack’ has become the foundation for tech-driven financial solutions promoting financial inclusion, with JAM trinity, Goods & Service Tax (GST) and Unified Payments Interface (UPI) underpinning India’s journey towards an inclusive digital economy. 

These digital tools have created a gold-mine of data and are contributing towards improved profiling of end-users enabling better offerings and customer satisfaction. The emergence of Fintech players and their collaboration/partnership with traditional banks has enriched the financial ecosystem. The market size of Indian neo banks is expected to grow to USD 11.65 billion by FY 2025 from USD 3.42 billion as of FY 2022, a three-year CAGR of 50.5%.

Public Digital Infrastructure and the ensuing innovation in the financial services has provided much needed and welcome support to the MSME sector. Initiatives such as JAM trinity, e-KYC/video-KYC enabling online KYC, GST Network providing availability of real-time GST data, MCA database providing credible information about business entities, Income Tax data enabling consent-based fetching of relevant data, GeMS which is an online marketplace for MSME products, Digital Documentation, Udyam Registration-online registration of MSMEs, etc., are few of the many critical pillars facilitating ease of doing business and improving access to finance. Introduction of the Account Aggregator (AA) framework, Open Network for Digital Commerce (ONDC), Open Credit Enablement Network (OCEN) along with the numerous digital trails mentioned above, shall bring about necessary synergy for overhauling the MSME sector and the lens through which the sector is presently viewed. 

The Needs of the EoDB Scenario in India

As on date, it is possible to incorporate a company in a day. Today any business can register for various approvals/ registrations online/digitally without even visiting the concerned authorities in most cases. Filing of returns by businesses, with various authorities, have also been digitised/made online. Finding out new market, securing orders, finding new suppliers/service providers, placing orders, logistics, payments, accounting, reporting, compliances, etc. have now become easy with the help of technology. This has resulted in substantial improvement in EoDB. Now even a small trader/vendor or service provider makes or receive payments digitally/ online without visiting any bank and that too at a fraction of cost. Similarly filing MCA returns, GST returns, IT returns, etc. have also been digitised/ made available online resulting in convenience and lower cost of compliances. 

However, measures for EoDB/ digital financial services are relatively easily accessed by larger MSMEs which are filing GST and/or IT returns and have bank statements. The informal sector (that forms a substantial portion of the MSME sector) faces significant challenges in connecting with formal institutions and reaping the benefits of EoDB and other technological measures. 

Hence, a few critical areas that require intervention includes: 

  • Addressing informality in the MSME sector for improving access to markets, government schemes etc. 
  • Introducing innovative credit & associated products to meet the emerging needs of the MSME sector.
  • Facilitating ease of doing business and ease of availing financial assistance basis cashflow/invoices, leveraging technology.

Technology-led Development

The ongoing tech-wave in financial services has opened new and improved channels for extending credit to MSMEs, particularly for the micro segment. The growing digital adoption by MSMEs through e-commerce platforms, use of digital payment methods and the digital ecosystem support mentioned above have eased business operations and contributed significantly to creating digital footprints for the sector. 

Innovative solutions for facilitating finance for the MSME sector have emerged. These solutions have not only eased access to credit for the MSME sector but have also enriched the MSME credit underwriting by lenders. Digital lending has promoted faster processing of loans, accelerated digitization and improved efficiency and cost of credit for the MSMEs.

Developing digital interventions/platforms for facilitating finance and other services for the MSME sector is the need of the hour. Initiatives such as StandUp India Portal, Udyamimitra Portal, ‘PSBLoansin59minutes’ and TReDS platform, facilitate credit and handholding support to various sections of the MSME sector. 

This blog is an abridged version of an article by Mr Sivasubramanian Ramann, Chairman & Managing Director, SIDBI, published in the May 2023 edition of CII EoDB Watch.