Banks are currently increasing their scrutiny standards in offering loans to corporate sectors in a scenario where the overall credit growth of the industry is in a slow-down. There are multiple instances where smaller companies are trying to leverage more than what is available to get higher working capital. Which means banks are now becoming more prudent while lending to them.
India today has 60 million micro, small and medium enterprises (MSMEs) operating, contributing around 30% of India’s GDP and employing more than 111 million people. But a major barrier to their growth has been the ease of getting credit. Today, around 40% of the total MSME credit demand is still served by informal sources of credit. As per the IFC Report 2018, the huge financing gap is pegged at INR 45 lakh crore out of which 40% will be served by informal credit, 25% through personal loans, and only about one-fifth of the total credit demand will be fulfilled by formal credit.
How SME, P2P Lending works in India?
Imagine a farmer in India, having a cyclical income while getting paid only during harvests which he must ensure lasts an entire year; but he lacks a secure place to save. In case of natural calamities like floods or drought, he loses his yield and there’s no one willing to sell insurance. If he wishes to buy new equipment, there is no one willing to lend. Thus, there is no trail and therefore no history, which makes it harder to find a financial solution for him. This is the reality of those 1.7 billion people and sadly India holds the major share.
SME Lending could be one of the key drivers for such scenarios. This sector, comprising manufacturing, infrastructure, service industry, food processing, packaging, chemicals, and IT has emerged as the most vibrant and dynamic engine of growth of the Indian economy over the past few decades.
Another segment of lending is P2P which enables individuals to borrow and lend money through online platforms that match lenders with borrowers. P2P can help the farmer to buy the new equipment by connecting with multiple lenders. This sector is expected to disrupt the consumer lending business, like what digital transactions have done to consumer payments.
The current problem with Corporate Lending:
The SME sector has a lot of potential for growth, in the coming years with respect to employment opportunities, entrepreneurial spirit, and innovation. However, the sector has always struggled due to the burden of challenges faced for the following problems –
Lack of required credit
The biggest challenge SMEs face in India is digital facilities. Without the support of advanced technology, collecting and providing credit-related information is complicated with cumbersome sanction procedures and insufficient collateral information. This adds to delays in disbursements which end up in a high rate of interest on the SME loans.
This sector has changed from the profile of the borrower to the restrictions that the central bank has put on the businesses to prevent it from creating any systemic risk to the economy. While Indians typically stay away from any risky business, which P2P lending is, those who are ready to take the bet face regulatory restrictions, like a cap on the money they can lend.
RBI currently is closely monitoring the evolution in this space. By bringing in Rs. 10-lakh cap which was not a part of the discussion earlier, RBI has shown that it does not want the sector to explore and create systemic risks for the overall non-banking financing space. With the Rs 10-lakh cap that the RBI imposed on the exposure for lenders on P2P platforms at any point in time the institutions, wealthy individuals, and family offices have lost interest in the business.
The evolution of lending and the impact on SME in India:
The abundance of Fintech firms
With the number of Fintech firms and lenders on the rise, SMEs will have the opportunity to get accessible and affordable financing options. SMEs always had to worry about the gap in their cash flows while taking the SME loan from the traditional lender. But now, they will be able to focus on their business entirely, as enhanced speed, transparency, and quick SME loan facilities are about to increase significantly.
Digital KYC Process
We are seeing a rise in business for the use of Digital onboarding of customers by identifying Fraud Check, doing Financial Analysis, and Digital contracting. This makes more time-consuming and traditional operations quick and effortless.
ZOOP.ONE platform is intensively working on getting more data points related to a consumer which can help to make the onboarding process quicker and easier. We have worked under different categories for a consumer segment to extract and fetch information with the following services –
- Identity as a service: Where zoop can help you to understand who is the customer, from where he/she is, and are the document shared genuine
- Financial Analysis: Understanding the financial capability of customers is very important to do the underwriting. Zoop provides advanced “Bank Statement Analysis” services along with “Credit Bureau analysis” and “Income Tax Reporting” to ensure financial credibility is checked.
- Digital contracting: Never before seamless exposure to make customer onboarding and contract signing at one stop where no physical intervention is required. Customers can easily sign a contract as per his/her choice.
For more details please contact us at email@example.com