Role of Fin-Tech in MSME sector
Initiatives such as ‘Digital India’, ‘Make in India’, ‘Demonetization’ and push for cashless economy drives for strong synergy for Fin-Tech and MSMEs. Providing alternative lending platforms with quick access to finance and without collateral free hassles has made Fin-Tech a disruptor to the traditional banking organizations.
PwC quotes that
“1. 67% of traditional financial institutions are already feeling the heat
2. 84% of traditional financial institutions are embracing disruption
3. 95% of traditional financial institutions are expected to increase Fin-Tech partnerships in the next 3 to 5 years”
This shows that Fin-Tech lending companies have a potential to emerge as an alternative lender for MSMEs.
RBI has also made some inroads in the Fin-Tech through Trade Receivables Discounting System (TReDS).
TReDS: In order to solve the problem of delayed payment to MSMEs, RBI has licensed three entities for operating the Trade Receivables Discounting System (TReDS). The objective is to create Electronic Bill Factoring Exchanges which could electronically accept and settle bills so that MSMEs could encash their receivables without delay. The system would facilitate the financing of trade receivables of MSME enterprises from corporate and other buyers, including government departments and public sector undertakings (PSUs) through multiple financiers.
The Fin-Tech industry faces challenges related to the risk of creditworthiness, entrepreneur behaviour and nascent stage of Fin-Tech industry in the domestic market. Over a period of time, the risk due to creditworthiness can be reduced by the KYC process, as more reliable information is available readily.