MEANING OF MSME ?
MSME stands for Micro, Small, and Medium Enterprises. In accordance with the
Micro, Small, and Medium Enterprises Development (MSMED) Act in 2006, the
enterprises are classified into two divisions.
1.Manufacturing enterprises – engaged in the manufacturing or production of
goods in any industry
2.Service enterprises – engaged in providing or rendering services
CHALLENGES FACED BY MSMES IN RAISING
FINANCE/CAPITAL IN INDIA :
1. Limited Access to Formal Financial Institutions: According to a report by the International Finance
Corporation (IFC), only 16% of formal MSMEs in India have access to formal finance channels. Lack of financial
literacy, inadequate credit history, and complex loan application procedures are some reasons why many MSMEs
struggle to get funding. Source: International Finance Corporation (IFC) report on MSME finance in India.
2. Collateral Requirements and Lack of Collateral: Banks often require collateral for lending to MSMEs,
making it difficult for them to secure loans. Approximately 23% of MSMEs in India do not have access to collateral,
leading to challenges in obtaining credit.Source: MSME Pulse Report by TransUnion CIBIL and SIDBI.
3. High Interest Rates: MSMEs face high interest rates on loans due to perceived higher credit risk. The average lending
rate for MSMEs in India is higher compared to large enterprises. This adds to the financial burden on MSMEs, making it
challenging for them to meet loan repayment obligations.
4. Limited Awareness of Alternative Financing Options: Many MSMEs in India are not aware of or have limited
knowledge about alternative financing options such as venture capital, angel investors, crowdfunding, and fintech platforms.
This lack of awareness restricts their ability to explore different funding avenues.
5. Inadequate Credit Information: Lack of verifiable credit information poses a challenge for MSMEs in securing loans.
Financial institutions often rely on credit history and past records to evaluate a borrower's creditworthiness. However,
MSMEs may not have a well-documented credit history, making it difficult for them to prove their creditworthiness.
FINTECH'S IMPACT ON THE GROWTH OF
MSMES IN INDIA
1. Access to Finance: Fintech platforms provide a digital, hassle-free, and convenient way for
MSMEs to access finance. According to a survey conducted by Ernst & Young, around 49% of
MSMEs in India are expected to rely on fintech platforms for their financing needs by 2023.
2. Quick and Easy Loan Approval: Fintech platforms utilize technological advancements such
as artificial intelligence, machine learning, and data analytics to streamline the loan approval
process. This allows for faster loan processing and disbursement, enabling MSMEs to access
funds quickly when they need it the most.
3. Collateral-Free Financing: Fintech platforms provide innovative lending models that do
not always require collateral. This opens up financing opportunities for MSMEs that have
limited or no collateral, helping them overcome one of the key challenges in raising
finance/capital.
4. Enhanced Credit Assessment: Fintech platforms leverage alternative data sources and
advanced analytics to assess the creditworthiness of MSMEs. This allows them to evaluate
the creditworthiness of MSMEs without solely relying on traditional credit scores or
collateral, providing a more comprehensive assessment. Source: PricewaterhouseCoopers
(PwC) report on Fintech Lending in India.
FUTURE GROWTH POSSIBILITIES
AND OPPORTUNITIES FOR FINTECH
IN MSME SECTOR IN INDIA:
The future of fintech in the MSME sector in India looks promising, with several growth possibilities
and opportunities:
1. Increased Adoption of Digital Payments and Financing: Rising digital payment adoption in
India, fueled by government initiatives like Digital India and the increasing use of smartphones, will
drive the growth of fintech in the MSME sector. This will lead to more MSMEs adopting fintech
platforms for both payments and financing needs.
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2. Demand for Data Analytics and AI-powered Solutions: MSMEs are generating vast amounts of
data that can be leveraged for better decision-making and risk assessment. Fintech platforms that harness
the power of data analytics and artificial intelligence (AI) will have a competitive advantage, providing
MSMEs with personalized solutions, real-time insights, and enhanced risk assessment.
3. Expansion of Supply Chain Financing: Fintech platforms can play a crucial role in facilitating supply
chain financing for MSMEs, ensuring timely payments to suppliers and improving their working capital
management.This will help MSMEs strengthen their position in the supply chain ecosystem, fostering growth
and development.
THANKYOU
