More rapid change in India – borrowing, especially by small business, used to be frowned upon. But a new study reveals digital lending to the MSME sector will grow 15 times to up to USD 100 billion annually in five years.
Traditional banks will remain averse to lending to MSME’s – the micro, small and medium enterprises – with the new funding from “informal sources”, according to impact investing firm Omdiyar Network and consultancy firm BCG. Lending for this sector is primarily through the non-bank financial institutions.
Several countries, including Australia, are looking at innovative ways to fund this sector.
The study said there are 60 million MSMEs having turnovers of less than US$35 million at present and they are a major contributor both to the country’s GDP as well as to employment generation.
However, the contribution of Indian MSMEs is far below that of their counterparts in the US or even China as they lack access to formal sources of finance and pay interest rates which are 2.5 times the ones charged by the formal sector, it added.
The study stated that 40 per cent of the MSMEs will be receptive to digital lenders.
This will be possible on government policies like introduction of the unified payment interface (UPI) and goods and services tax (GST), massive reduction in costs of data connectivity and also the ‘India stack’ (more on this in next post).
An increasing number of MSMEs are willing to share their data online and 60 per cent believe they will get larger amount of payments through the digital means in the next three years, the study said.
Change– a way of life in modern Indian business.