The micro, small and medium Enterprises (MSMEs) sector contributes to nearly 30% of India’s GDP, and is a key in India’s growth journey.
According to the International Finance Corporation, the credit gap for MSMEs in 128 developing countries was estimated at $5.2 trillion in 2018 alone.
In India too, the credit gap is estimated at nearly $240 billion.
But India has been pro-active in propelling the MSME sector’s growth through the introduction of the Digital Public Infrastructure (DPI).
The Open Credit Enablement Network (OCEN) also makes the cash-flow-based lending available to MSMEs with greater ease.
How DPI is solving credit issues of MSMEs?
DPI addresses multiple issues which hinder access to affordable credit for MSMEs. It provides a framework for consent based sharing of KYC and digital financial data.
Ramaswami Iyer, founder and CEO of Vayana, while citing an example said the the NBFC-AA (Account Aggregator) framework has enabled consent based single window access to the financial information of the individual assisting regulated entities in assessing creditworthiness at a substantially lower cost.
It also allows for filing of charges at a central repository such as CERSAI, ensuring transparency and reduced risk for borrowers and lenders.
Iyer further said the instruments such as eNACH mandate takes care of repayments/collections as the borrower’s bank account is debited on the due date, eliminating the need of manual follow ups with the business owner.
“DPI creates standard protocols allowing credit providers to consent based access to information such as bank financial transactions, GSTN & income tax returns, MCA filings, credit bureau score. Analysis of this information helps in assessing creditworthiness of MSMEs,” he said.
How DPI is reducing acquisition costs for lenders?
Through DPI, the lenders get help in data-driven customer sourcing, streamlined onboarding processes, efficient loan servicing via digital platforms, and robust risk measurement techniques.
“The use of digital lockers enables easy access to KYC documents required for beneficial owners and entities. Through APIs, lenders can verify PAN details, utility bills, and check if the individual/entity is listed as a defaulter,” Ramaswami Iyer of Vayana explained.
Additionally, regulated entities can conduct Video KYCs to fulfil the necessary OSV (Original Seen and Verified) formalities. After extending loans, charges can be lodged in the central repository (CERSAI) through APIs, collectively resulting in significant cost savings for lenders.
Talking about how the DPI has enabled in the last mile connect, Iyer said India has been miles ahead in using DPI for bringing masses into the fold of formal banking.
It has made it possible for lenders, and other regulated entities to have consent based access to KYC and transmission of benefits, removing the hurdles in terms of authenticity and secure storage of data.
Further, the Reserve Bank of India (RBI) has also ensured responsible growth of the sector through policy interventions such as introduction of the digital lending guidelines, creating a fintech repository to percolate best practices across the sector, setting up a platform for frictionless credit and giving customers access to loan products across lenders through a web based aggregation portal.
All adding up to creating infrastructure to enable transparency within the ecosystem.
