The Role of Technology in Reviving MSMEs in India

There is no doubt that the COVID-19 pandemic has affected the healthcare sector worldwide. Along with disrupting the healthcare system, it has also disturbed the economy across the world. Due to the pandemic, small businesses are struggling to survive. Also, small businesses have been severely impacted with factors such as liquidity crunch, slack in demand because of pay cuts and job losses, disrupted supply chain, subsequent lockdowns, and lack of labour and funding.

MSMEs are also facing the wrath of high taxation, interest payments, and loan repayments. Several small businesses are struggling to keep their businesses operational, while a few have already discontinued their supplies and services due to the drastic slowdown in the economy.

In order to facilitate the revival of MSMEs, several relief measures have been announced by the government. One such measure is collateral-free loans worth Rs 3 lakh crore which is backed in terms of both the principal as well as the interest by the government. With this measure, MSMEs are able to seek credit support from the banks with ease.

Apart from the reforms introduced by the government, technology also can assist MSMEs with the necessary resources and opportunities in order to acknowledge the new normal. In this article, let’s look at how technology can help small businesses revive in India.

Amidst the pandemic, India has witnessed tremendous growth of digitalised payments, with more and more number of people opting for contactless payments in order to follow the social distancing norms. Hence, this is the right time for lending channels to either collaborate with appropriate fintech platforms or make an investment in the digital transformation of small businesses so that MSMEs can stay competitive.

Advances in technology can surely help in facilitating the ease of doing business for small businesses. Also, the government needs to look at adding more guarantee-based programs as well as a liquidity boost to MSMEs who are currently facing severe liquidity problems.

Also Read: Google Pay Introduces the NFC-Based Card Payments Option in India

In order to evaluate the creditworthiness of MSMEs in an efficient way, lenders have to use advanced technologies such as Machine Learning (ML) based cash flow analysis. This analysis will assist them in differentiating cash flows from the pre and post COVID times better. This will also make the overall loan application process, including the disbursal process more efficient as it reduces the paperwork to a large extent.

It will also safeguard the interests of lenders and bring down the rate of delinquency by rendering easy access to credit to businesses which are badly in need of it. Particularly, this will help MSMEs which struggle to get credit from the formal lending institutions such as banks.

Lenders can deploy solutions such as Artificial Intelligence (AI) and ML in order to get insights such as loan repayment behaviour, cash flow forecasts, digital payment behaviour, etc. concerning borrowers, particularly who do not have a formal credit score.

With the aid of technology, financial institutions will be able to revamp the cumbersome loan application process of yesteryears. Banks can digitalise the complete loan sanctioning process. Innovative tech-enabled solutions can assist in automating the risk assessment of MSMEs, thereby speeding up the lending processes to a large extent.

Digital advancements combined with policy reforms can help MSMEs revive from the severe economic crisis the COVID-19 pandemic has resulted in. This pandemic has presented technology with an excellent opportunity to drive the growth of small businesses in India.

For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in