Empowering MSMEs through Fintech: The Role of Digital Lending in Financial Inclusion
According to IBEF, since the inception of MSMEs, the sector has played a vital role in creating job opportunities and fostering socioeconomic development, particularly in India's semi-urban and rural areas. Over the years, the industry has grown in importance due to its contribution of roughly 30% of the country's GDP, and a total of 65,23,067 businesses were classified as of January 2023, with 94,18,101 companies classified as service and 36,75,597 businesses classified as manufacturing.
However, access to money has always been a significant challenge in terms of growth prospects. As a result, MSME organizations have taken the digital road to fill the gap. In this regard, the industry's functioning has changed dramatically as an outcome of the introduction of new technologies and the formation of a new-age financial ecosystem.
In this context, financial inclusion, the act of providing individuals and businesses with access to financial services, which is a vital driver of economic growth and poverty reduction. On the other hand, traditional financial systems have frequently excluded a sizable percentage of the population, particularly those in underserved neighbourhoods and low-income groups. This is where digital lending, fueled by improvements in financial technology (fintech), has emerged as a transformative force in fostering financial inclusion.
Digital Lending: Role in Financial Inclusion
Breaking Down Barriers to Access: Given the obstacles confronted by MSMEs, the introduction of digital lending has transformed the financial environment by removing the hurdles that prevent individuals from obtaining loans. However, compared to digital lending, traditional lending relied primarily on loads of paperwork, information requirements, and eligibility criteria, making it difficult for individuals to acquire loans. However, as digital lending has gained hold among MSMEs, the platforms have reduced application processes beyond standard measures. As a result, individuals and organizations in underserved areas can now obtain loans conveniently and equitably.
Improving Efficiency and Speed: The improved speed and efficiency that digital lending adoption has brought to the borrowing process is one of the many benefits that have created a buzz in the sector. Unlike traditional lending, which requires filing vast piles of paperwork followed by lengthy follow-up and approval processes, digital lending platforms have carved out a niche by streamlining operations. Loan applications and processes have become entirely online since their inception, eliminating the need for actual visits to banks. Furthermore, the utilization of new-age technologies such as machine learning and data analytics has shortened approval periods from weeks to days.
Offering Customized Loan Products and Flexibility: Fintech's cutting-edge technology and digital capabilities have enabled digital lending platforms to provide plenty of loan solutions specifically targeted to meet the requirements of MSMEs borrowers. Depending on the type of business, digital lenders have offered a variety of flexible and tailored options for loans, whether they be short- or long-term loans for personal or professional usage. In this context, receivers can select loan conditions, payback plans, and loan amounts that suit their financial needs and objectives. Additionally, fintechs offer unique goods to their MSME customers, assisting them in progress, through the enhanced use of emerging technologies like artificial intelligence, machine learning, and data analytics.
Promoting Financial Education and Empowerment: In a bid to streamline the lending process and empower MSMEs, digital lending platforms are going beyond the provision of loans by offering financial education and empowerment resources. Despite various financial initiatives, consumers from underserved areas lack sufficient knowledge of the loan application process. Thus, by providing interactive tools, educational content, and individualized financial guidance, lenders help borrowers improve their financial literacy, form responsible borrowing habits, and improve their overall financial well-being. Furthermore, putting a focus on empowerment and education helps people develop long-term financial resilience and make wise financial decisions that go beyond borrowing.
Digital Lending: Paving the Way for MSMEs
With technological advancements, digital lending has become a potent financial inclusion catalyst, enabling people and businesses to get beyond traditional obstacles and access crucial financial services. In fact, the introduction of digital lenders has revolutionized the borrowing process, making it more effective, inclusive, and customized to each borrower's particular needs. Thus, by leveraging the potential of digital lending, MSME businesses can build a more inclusive financial ecosystem that promotes economic growth, lowers poverty levels, and gives people and businesses worldwide more power.
— Ramkrishna Raut, Head - Data Science and Technology at Happy
