The Indian fintech ecosystem of today is an evolution in itself. The finance industry has wholly entered the digital space offering instant loans from personal loan apps, making money transfers, and offering account management and asset management services. 

Think of a few years ago when the only way to get funds to start a business was to approach a bank for a loan or an investor for funding. And see the fintech revolution of today when the micro and small businesses no longer have to go through the traditional financing options to avail themselves of microloans for starting, scaling up, or running their businesses. 

How fintech is foraying into the lives of tech-savvy micro-entrepreneurs of today 

High processing fees, steep preclosure charges, uncertainty or delay in loan disbursement, lock-in periods, etc., are quickly becoming things of the past. While the conventional methods made access to credit impossible for entrepreneurs, fintech firms offer micro-entrepreneurs new and easy ways to borrow money.

Say for example, you are starting a business, and it is getting traction from your customer base. And you want to scale it up by adding to your staff, renting a bigger space, getting more work tools, or creating your company’s website for online orders and payments. You can do all of this by availing a working capital of up to ₹5 lakh easily and quickly with a few taps of your finger. 

Alternatively, getting a few lakh rupee loans from conventional financial institutions for your business would have been arduous. While some financial entities would have taken too much time to decide on your eligibility for the microloan, others would have offered it at excessive interest. 

Again, when no financial institutions could lend you required money at proper interest, you would have resorted to your local money lenders taking a loan at inflated interest rates. But thanks to the many trustworthy fintech platforms in India, you have new avenues to get the funding you need. 

With the 2017 regulation of P2P lending by RBI in India, new players are entering and disrupting the previously unexplored avenues in alternate finance and credit underwriting. The digital lending platforms have played a pivotal role in allowing credit penetration to the underserved.

So, when you need support to grow your business, personal loan apps can help you scale it.

Lack of financing for business is a problem faced by a million entrepreneurs

Millions of borrowers in India face problems in doing business because they don’t have easy access to credit. As you know, availing of loans through traditional channels is a cumbersome, time-consuming process that involves too much physical documentation. The uncertainty of getting funds and the delay in loans many times cause irreparable losses. Again, hidden terms like lock-in periods, preclosure loan charges, high processing fees, etc., make credit less affordable to several credit-seeking entrepreneurs.

Digital lending fintech and personal loan apps are overcoming the challenges mentioned above and thus disrupting the borrowing space in India. A few personal loan apps have a niche, and many use their proprietary algorithm to assesses a borrower’s eligibility to get a loan using dependable software. The algorithms can perform an all-around assessment of a borrower’s creditworthiness with just three to four parameters. 

The credit bureau coverage for MSMEs in the country has been too low. And so, there is a need for alternate data sources for underwriting MSMEs, the sector with a huge potential in shaping the country’s economy.

What difference do digital lending platforms make to MSME financing?

Many loans have already been disbursed to both MSMEs and individual borrowers using new-age digital lenders. Thus, digital fintech has saved many MSMEs from falling into the loan trap of local lenders.

The loan lifecycle has become easier and simpler through a new-age model of lending, which takes three minutes to decide on a loan application, one minute to make the transfer, and no human intervention. The new-age digital lenders are changing the lending landscape in the country. But such innovative models still need support and validation from regulators and government initiatives to work in large settings.

The digital lending platforms have started leveraging Machine Learning and Artificial Intelligence to generate valuable insights from data sources. For example, the software is doing its holistic assessment by analysing borrowers’ digital footprints and social history. Again, the removal of manual touchpoints has accelerated the time taken for making credit decisions. 

The platforms can lend money fast to MSME entrepreneurs by checking their monthly cash-flow and number of orders, analyzing their Facebook profile, using alternative credit scoring, judging their social media presence, looking at their bank statement and personal spending patterns, etc. to sanction them a loan that could be disbursed on the very same day of application.

How are personal loan apps making a difference?

By helping small businesses with funds, personal loan apps and fintech lenders are helping generate employment, encourage the government’s ‘Make In India’ initiative, and aid the overall financial growth of the country. But, more importantly, fintech lenders are playing a role in creating new businesses that can thrive because of easy financing and promising business models.

In addition to being more accessible than traditional lenders, digital platforms also offer flexible loan repayment and foreclosing options at zero extra cost to reduce the burden on MSMEs. Moreover, the new-age platforms are like a springboard for underserved borrowers as they can now get easy funds and develop a good credit history that can further help them get credit from other outlets in the future.

As a nascent industry, fintech lenders are paving the way forward to build reliability and trust among borrowers. They are changing the face of alternate financial services in India. Government bodies such as RBI have formulated regulatory measures to control the functioning of digital lending platforms in India. RBI sanctions the NBFC P2P certificate to companies that maintain transparency and adhere to its strict conditions. 

By adhering to RBI guidelines and relying on data-driven software insights for better lending predictability, the new lending space is triggering loan top-ups, instant disbursements, loan re-applications, etc. safely and securely.

The 3 ways in which fintech lenders are boosting small business growth

Below are the three ways in which fintech lenders are helping small businesses grow:

  • With digital lending

Micro and small businesses need small loans to start, run, and scale up their businesses. However, if you are an MSME entrepreneur, you must have experienced difficulties dealing with conventional financial institutions to get a personal loan for business.

Micro and small businesses have a huge role to play in the Indian economy. However, traditional lenders are not big on lending to MSMEs as they require small funding, and their activities are not consistent.

Again, the traditional loan application process needs too much documentation, numerous bank visits, and a high turnaround time. The advances in the technology and emergence of digital lenders have put an end to the monopoly banks enjoyed for a long time.  

Fintech is helping businesses of all different sizes by bridging the gap between the businesses and the banks with technology. Fintech innovations have removed inconveniences in the lending process and have made it a lot easier. The personal loan process of today is instant, online, convenient, and paperless.

  • Offering business opportunities beyond boundaries

Before fintech lenders came into being, receiving overseas payments was costly for small and micro businesses because credit companies charged a high fee. Moreover, a huge cost was associated with the money transfers that happened across borders. But fintech changed all that, and today it offers excellent international business opportunities. Transferring money overseas and accepting overseas payments has become both easy and economical. Hence, increasing the ease of doing business overseas for MSMEs.

  • Helping MSMEs track expenses and monitor cash flow

MSME business owners must keep a tab on their expenses and draw their salaries to succeed and thrive in business. So, micro-entrepreneurs need to have an accounting system that tracks their costs and monitors their cash flow in real-time to ensure their business runs without any hiccups. Many fintech companies are offering invoicing and expense tracking apps to small businesses. Many of these apps are free and do not need business owners to have accounting knowledge or advanced IT skills to use them.

Conclusion

The future of business seems promising with the entry of fintech lenders.

The seamless experience and convenience of using digital lending apps will lead the sector towards exponential growth. The ability of digital lenders to fill the credit gap for both enterprise borrowers and underserved individuals is promising. However, lending platforms would not eliminate the traditional financial institutions from the lending ecosystem. 

Fintech lenders will partner and collaborate with the financial institutions to build an inclusive and balanced lending infrastructure in the country. As a result, both of them will co-exist and collaborate to support and inspire millions of entrepreneurs in the country.

The synergy between the data-based insights, tech-enabled platforms, and the scale of traditional financial institutions will open up powerful avenues to expand the credit reach to a large group of underserved individuals and businesses in the future.