P2P Lenders To The Rescue Of MSMEs

Access to credit is one of the most painful points among the MSMEs in India. However, with alternate data, GST data stack and AI-driven algorithms, MSMEs are hoping for a change in the credit positions — P2P lenders have stepped up to take up the challenge.

- Vanita D’Souza

The Indian Micro, Small & Medium Enterprise (MSME) sector is massive. There are more than 60 million MSMEs in the country. The sector contributes 30 percent to the country’s GDP and employs over 100 million people. And yet, often it is declined formal credit that helps keep businesses up and running. According to an Omidyar Network and Boston Consulting Group’s report, the SME credit gap in the country is close to $600 billion and almost 40 percent of MSMEs borrow from informal sources at double the interest rate. Most of the SMEs fail to raise funds due to inadequate financial records, lack of credit histories etc. Also, from a bank’s perspective, the cost of servicing an MSME loan is higher as opposed to a corporate loan. With the constant need to keep their NPAs in check, banks tend to avoid servicing MSME clients. However, with the age of digitalization, reorganization of informal players in the sector led by the GST drive and growth of alternative lending platforms, there is a new ray of hope for the sector.

The same report suggests that India’s open digital infrastructure, unmet customer demand, and leapfrogging digital behaviour have the potential to benefit a broad range of players and MSME digital lending can grow to $80-100 billion in annual disbursements. Having said that, a year or two ago, one could have barely imagined how peer-to-peer (P2P) lending startups would contribute to this growth trajectory.

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