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Small Business Lending – MSME Lending Vision 2023

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There are many micro, small, and medium-sized enterprises (MSMEs) operating in all over India today, which are also one of the leading contributors to employment and GDP. This lending landscape is set for a rapid change, and in more than one-way small business lending in FY 2023 will be very different from what we have seen in the previous decade. The first two years of this decade kept the Digital Lending growth muted but gave a very firm indication of the direction it has taken.


The digital lending platforms together will disburse approximately 21% in 3.4 Lac Crore micro-enterprise lending market, which is approximately 0.7 Lakh Crore, a huge number for virtually non-existent digital lending market. This is the UPI moment in lending, where while the banks struggle to do more than 30,000 Cr Loan in a Financial Year with any new business line, this number will hold for the new age fintech’s like Paytm that enable digital lending on top of payment railroad built mostly in last decade.


The MSME sector is heart to India’s resilient economy. They are 90% of all registered enterprises in India, build 30% of our GDP, bring 45% of exports revenue to the country and generates 110 Mn jobs. They are core to our growth. Within this throbbing community of 60 Mn enterprises, a large chunk is micro in nature, nearly 95.5%, however their share in borrowing is much lower at 88%. This is not even sustainable and struggles in capturing growth. A widespread inability to gain sufficient access to formal credit acts as a major challenge along with the lack the proper documentation needed to secure a formal loan, inability to offer collaterals or having incomplete or under-reported financials. As a result, the formal loan process can be difficult for MSMEs and costly for borrowers and lenders alike, leaving traditional lending models unable to address the needs of MSMEs properly. This gap is being exploited by new age lending platforms like LoanTap’s LTFLoW, Paytm, BharatPe and many others, who are riding on data led lending solutions as against balance sheet led lending products of banking system. New age lending is friction free embedded finance stacks, that works on top of a payment layer or invoicing layer and borrows consent-based data liberally from bureaus, GST network, Income Tax architecture, Central KYC, Pan Networks and many more.


The journey to achieving 20% market share was full of sweat and blood, but the journey in 2023 and there onwards will be full of joy and exhilaration, looking at the growth and UPI transaction data, works being done on GEM, OCEN and ONDC, will open up flood gate of business data to underwrite high quality loans in real time, to settle any transaction on the spot.


Fundamental that will lead to reversal of market share in favor of fintech lenders are;

  1. Growth in UPI Transactions: This gives first-hand information and control of flow of money and allows loans to be created remotely.
  2. Digitization of Invoicing and Supply Chain: This creates an environment for Supply Chain Finance, Invoice Discounting and Buy now Pay Later
  3. ONDC
  4. OCEN


(The author is Mr Satyam Kumar, Co-Founder & CEO- LoanTap, and the views expressed in this article are his own)

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