For the past 50 years, small and medium-sized enterprises (SMEs) and micro, small and medium enterprises (MSMEs) have powered India’s economy, especially in rural and semi-urban areas. But they often fail to get adequate financial support from government agencies, banks and financial institutions, according to the SME Chamber of India.
India’s booming fintech market could be their savior.
A faster way
Manjunatha BN runs a music store called Sri Sai Musicals in Bangalore. He needed a loan of $7,800 (5 lakh rupees). Unsure of getting one from a bank, he decided to approach Bangalore-based digital lender Capital Float. To his surprise, he received his loan in no time.
Based on financial statements, bank transaction history and e-Commerce transaction behavior among other data sources, his loan was processed. “The entire experience was surprisingly fast and pleasant. Officials from the company are ready to help anytime. I’ll definitely approach them if I need another loan,” he says.
Fintechs specializing in micro-financing are gaining the trust of Indian SMEs and MSMEs.
Stanford University graduate Sashank Rishyasringa cofounded Capital Float in 2013 with classmate Gaurav Hinduja. The company develops tailored credit products for SMEs such as a mobile app for India’s kirana (small neighborhood retail) stores.
By using a customer’s Aadhaar number and electronic KYC, Capital Float offers loans to kirana stores in less than three minutes. Other products include finance for online sellers and taxi drivers, Merchant Cash Advance (loans against card swipes) and Invoice Finance term loans. Rishyasringa says, “The biggest issue is raising working capital. We wanted to build a lending platform for small businesses using multiple data sources.”
Credit underwriting remains a major challenge in the SME sector. Loan officers in India use outdated methods to assess an SME owner’s credit-worthiness. Through proprietary technology using big data, transaction history on e-Commerce websites, psychometric questionnaires, and social media behavior, Capital Float disburses loans in an accurate and fair manner. “Many Indian SMEs don’t maintain balance sheets, so we survey alternate data sources to assess credit-worthiness,” says Rishyasringa.
The AI element
Gurgaon-based Loan Frame is one of the few Indian fintechs using AI to offer micro-lending options. An ecosystem of web and mobile applications interact with each other, managing workflow between borrowers, introducers, partners, operations and lenders. AI and machine learning algorithms examine a borrower’s profile to evaluate credit worthiness in minutes.
Following a 60-second eligibility check, borrowers can apply for a loan. “Currently, for unsecured business loans, we take one or two working days from the time of application completion to loan sanction. We want to move towards a turnaround time of a few hours, using advanced algorithms for borrower assessment,” explains Shailesh Jacob, founder and CEO of Loan Frame. Applicants can upload the necessary documents for their loan application on Loan Frame’s website or Android/iOS apps. “Unsecured loans are least paper-intensive,” says Jacob.
Source: Forbes
