MSMEs Coming Of Age With Rapid Digitalisation

Digitalisation has and continues to reinvent businesses worldwide, and this disruption will substantially alter how MSME function. Digitalisation addresses the cybersecurity gaps for small and micro businesses as advanced cybersecurity training techniques, programs, and products assist MSMEs in comprehending, forecasting, mitigating, and monitoring cyber threats. Moreover, data monitoring, synthesis, and analysis enable businesses to use data for better results. It also fills a gap in companies where technically strong expertise is lacking. Technological advancement delivers a comprehensive grasp of processes in an easily accessible style. 

Initiatives driving growth

Significant initiatives are carried out by companies, the government, and regulators to build an enabling ecosystem to help the MSMEs grow. Government e-Marketplace (GEM), Emergency Credit Line Guarantee Scheme (ECLGS), Aatmanirbhar Bharat economic package, Credit Linked Capital Subsidy Scheme (CLCSS and Digital MSME Scheme have all proven to be critical enablers for the Indian MSME sector to take a significant step ahead. Internet and mobile banking, electronic financial transfers, UPI, Aadhaar e-KYC, the Bharat Bill Payment System (BBPS), QR Scan & Pay, digital pre-paid instruments, and other projects have revolutionised the financial process among MSMEs in India, and their operations are now digital-mobile-anywhere-anytime.

Tech-ing it up

Accessibility of internet services, technology to facilitate credit access, improved effective financing systems and strengthening financial intermediation have all made substantial progress and are continuing to grow exponentially. Artificial intelligence (AI) and machine learning (ML) provide deep insights into customer behaviour and business projections, and alternative data bridges the gap between standard and alternative finance and provides better knowledge based on dynamic aspects. Lenders use cutting-edge technology, data analytics, demography, and social and financial behaviour to determine debtors’ borrowing tendencies, payback capacity, and creditworthiness. During risk assessment, the models include time-sensitivity and seasonality elements using alternate data such as inventory, GST data, repayment trends, and invoices, among others.

NBFC to the rescue 

The increased use of data and analytics has opened new avenues for NBFCs to better their credit automation process through technology integration. NBFCs have been critical in providing loans to a broader section of MSMEs across geographies as they are pivotal in embracing technology to improve corporate processes, offer faster services, and enhance the entire customer experience journey. A recent Reserve Bank of India (RBI) study shows that NBFCs account for 60% of loans sanctioned through digital platforms. As MSMEs pose significant risks, NBFC must monitor repayment patterns regularly and conduct risk evaluations. 

Integrating technology into all company activities is the most crucial phase for an essential service provider like an NBFC. With an increased reliance on technology and automation comes the duty of safeguarding sensitive data. As a result, today, digitally agile NBFCs invest heavily in comprehensive data security measures. Because of their extensive technology usage and cost-effective digital solutions, they have been able to lower loan risk and give a better client experience. It has aided them in embracing insight-driven lending, opening the road to establishing long-term and profitable firms. 

Challenges

Despite the technological advancements, many SMEs are still striving to grasp the rapid digital acceleration. Small businesses are struggling to cope with this competitive scenario because many of them cannot leverage technology for better economic opportunities. MSMEs have trailed behind in digital adoption and, as a result, have become reliant on intermediaries to access an online platforms. Some challenges MSMEs face include the requirement of Collateral for MSME loans, Inadequate Financial Expertise, Lack of Liquidity, Limited Access to current financial regulations, and inability to fill documents digitally. 

The Road Ahead

MSME is a significant sector in the Indian economy as Tech-enabled solutions have enormous potential to benefit MSME firms. Interestingly, India’s technological start-up ecosystem is fueled by favourable government policies, an ever-growing consumer base, and increased technology skillset among educated young people. Technology-based solutions will accelerate the MSME outreach to a more extensive client base. While MSME promotes technological advancement and innovation, it is also critical to pay close attention to governance and conduct issues. The sustainability of any business boils down to improved client protection, improved cyber security and resilience, financial integrity management, and solid data protection.