Digital small business loans see adoption after Covid disruption last year: MSME lenders

Credit and finance for MSMEs: Internet penetration and growing adoption of affordable smart devices, coupled with digital lenders bridging the gap of information asymmetry, have also attracted traditional and new borrowers from metropolises and from the Indian hinterland to the digital channel.

Credit and financing for MSMEs: The adoption of digital lending platforms among small businesses after the Covid crisis has accelerated even though the traditional banking channel has remained a challenge for a large number of credit-hungry micro, small and medium-sized enterprises (MSMEs) in the country. The digital route to securing instant credit has helped digital platforms’ MSME loan portfolio to swell compared to last year. Internet penetration and the growing adoption of affordable smart devices, coupled with digital lenders bridging the gap of information asymmetry, have also attracted traditional and new borrowers from metropolises and hinterlands. Indian to the digital channel.

“Indian MSMEs have been limited in growth capital for decades, but unfortunately formal sources of credit accounted for less than one-fifth of MSME loan capital needs, leading most small businesses to rely on informal sources of credit. Going digital has helped create access to capital for some of these small businesses, which have hitherto relied on informal credit, often at usurious rates,” said Utkarsh Sinha, Managing Director of Bexley Advisors at Financial Express Online .

For example, Indifi launched by former venture capitalist Alok Mittal in 2015 saw loan disbursements decline by 30% post-Covid last year before crossing pre-Covid disbursement value in Q3 2020-21 after the end of lockout. The company has so far disbursed over 35,000 loans in over 650 cities and over 12 industries with a network of over 20 lenders. Even during the pandemic, Indifi disbursed 20% of loans to companies that had no credit history, while more than 45% of disbursements went to companies that did not own their property and another 20% to companies with less than two years of activity. .

“Small businesses without a digital footprint have historically struggled to obtain credit from traditional lenders. II and Tier III would have struggled to access financial institutions that place more emphasis on physical outlets,” Mittal told Financial Express Online.

By contrast, for the roughly eight-year-old small business lending platform NeoGrowth Credit, which has served and engaged with more than 85,000 businesses so far and currently has more than 20,000 active clients, Covid stress had no material impact on the strength of the company. The company had disbursed about Rs 1,450 crore in FY20, while growth in its assets under management remained flat in FY21 as lending was affected by the Covid disruption. Nevertheless, “the March 21 outflow rate for loans granted was over Rs 150 crore. The coronavirus pandemic has led to a huge expansion of digital payments in the industry and NeoGrowth is well positioned to capitalize on this opportunity. We had Rs 1,323 crore AUM as of March 31, 2021 and total disbursement of around Rs 6,300 crore has been made since inception till FY21,” NeoGrowth Credit CEO Arun Nayyar told Financial Express Online .

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More so, digital lending platforms have also been engaged with the government Emergency Line of Credit Guarantee (ECLGS) scheme which was launched last year after Covid under the Rs 20 lakh crore Atmanirbhar package. The government had recently announced a three-month extension of the scheme until September 30, 2021, from June 30, 2021, or until guarantees in the amount of Rs 3 lakh crore are issued under the fourth revision of the program called ECLGS 4.0. Finance Minister Nirmala Sitharaman had last month extended his 50% limit to Rs 4.5 lakh crore. The minister had said on June 28, 2021 that the government had disbursed Rs 2.69 lakh crore at 1.1 crore units by 12 public sector banks, 25 private sector banks and 31 non-bank financial companies.

“Eko helped small businesses register for the ECLGS last year, however, the decision to lend to these businesses was made solely by banks working with the government on the ECLGS. Eko registered over 1,000 small businesses with the ECLGS and the partner bank was State Bank of India,” Abhinav Sinha, co-founder of Eko India Financial Services told Financial Express Online.

The company had disbursed nearly $400 million between 2016 and 2020 to small businesses while it is currently disbursing around Rs 125 crore per month. “We plan to shell out Rs 2,000 crore in FY22 and the number of customers we plan to onboard is 6 lakhs. Eko has been in the financial services industry since 2007 and has been running a loan pilot for a very long time with high disbursements, but the loan portfolio was small. Now Eko is officially expanding its lending business with one main focus,” Sinha added.

Now, with the third wave looming, lending platforms are hoping digital lending will pick up speed. “In the event of a third wave, there would be an increase in demand for loans from MSMEs as they now have a pre-planned structure for their business model. We are targeting a loan amount of 1 crore per month over the course of of the upcoming financial year to help small businesses and MSMEs in need,” Shams Tabrej, Founder and CEO of Ezeepay told Financial Express Online.

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