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Digital lending to MSMEs can become Rs 15 trillion business for lenders: Report 

KNN , Aug 22, 2018

With digitization of economy and increasing technology adoption by small and medium enterprises (SMEs), digital lending to the MSME sector could become Rs 15 trillion opportunities for the lenders over the next five years, according to a study report.

The study was conducted by Boston Consulting Group (BCG), Federation of Indian Chamber of Commerce & Industry (FICCI) and Indian Bank’s Association (IBA).

The report highlighted that currently digital lending to MSMEs accounts for only 5 per cent of total lending to the sector and can increase to 21 per cent over the next five years.

"The key drivers of this growth are increasing MSME digitization and readiness for digital lending as well as an ecosystem readiness in terms of data sharing and access," said the report.

This significant likely jump will close the gap with digital retail lending, which is expected to reach around 48 per cent of the total retail lending in the next five years.

Besides, report pointed “With a high degree of variability in the quality of assets in the MSME segment and the small ticket size of advances, success in this market will belong to players who have the resources and capabilities for reliable credit underwriting, and a comparative cost advantage through end-to-end digitization.”

Further, it highlighted that currently, of the total formal credit of around Rs 100 trillion, only 25% is extended to MSMEs.

With the introduction of goods and services tax (GST), small businesses are increasingly getting formalized as well as digitized, report added.

Also, it has been observed that the MSME lending can be the largest source of value creation for the financial services industry.

The report said “It’s both an obligation and an opportunity whose time has come. It will have a multiplier effect on GDP.”

According to the study, MSME lending, especially in smaller ticket sizes is ready for digital with significantly improved turnaround time.

"Initially, the focus will be on small ticket unsecured lending. However, as the ecosystem matures, even the secured lending will become more digital," it said.

The study finds out that multiple enabler models have emerged to support end-to-end digital lending journeys.

Most of these models focus on data-primarily using the common platform based access and analysis, study report added.



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