November 26, 2018

Digital Lending to MSMEs: Ecosystem, Challenges & Potential Solutions

India has 51 million SMEs contributing 37% of the non-agricultural GDP and employing 40% of the workforce. While they are heterogeneous in their organizational form and offerings, they share a common challenge; the availability of formal financing to the sector has not been commensurate with the importance it holds for the economy. According to the Transunion – CIBIL MSME Pulse Report, only about 5 million out of 51 million SMEs have access to formal finance. This is owing to several factors; fragmented/incomplete financial data that informs lending; inability of formal lenders to lend below a ticket-size given the (fixed) costs of due diligence; incomplete credit infrastructure coverage as credit bureaus cover a minor fraction of MSMEs and inflexible payment options. A study authored jointly by Omidyar Network and BCG (“The MSME Study”) just this week suggests that 40% of the MSMEs are constrained to borrow from informal sources at interest…

Leave a Reply

Your email address will not be published. Required fields are marked *