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This Is how alternate lending platforms are pioneering the financial inclusion of SMEs in India

India has emerged as the world’s fastest growing economy. The small and medium sized enterprises (SMEs) have been instrumental behind this widespread growth of the Indian economy. Roughly, there are around 43 million SMEs in India, employing more than 40 percent of the workforce in the country.

However, no matter how much overwhelming these stats are, SMEs in India often face big hurdles when it comes to expanding their businesses into bigger units. The most prevalent of these challenges faced by the SMEs is the shortfall of working capital. According to a study by CRISIL, the Indian SMEs need Rs. 5.15 lakh crores to overcome the financial crunch faced by them.

 

Financial challenges faced by the SMEs

As mentioned above, the SMEs in India had their potential curtailed due to limited access to finances required to fuel their growth. The main reason behind this is the reluctancy of traditional lenders to direct their funds towards this sector. The stringent lending criteria and high interest rates also mean that availing loans from these institutions could do more harm than good to the small businesses.

As a result, most of the SMEs find it a daunting task to get access to finances to fund their business growth. Left with no recourse, they were either left to stagnate, or reach out to unscrupulous money lenders who impose punishing interest rates.

 

How alternate lending platforms have helped in financial inclusion of SMEs?

With the government laying more emphasis on helping the small business units by providing them easy finances, many non-banking financial institutions have jumped into the bandwagon to lend a helping hand to the struggling SMEs in India. Today, most the IndianMSMEs are leaning on these alternate lending platforms to avail credits and fill their cashflow gaps.

According to the Indian Credit Rating Agency (ICRA), the share of lending by Non-Banking Financial Corporations (NBFCs) towards the SMEs will increase by 22-23 percent by March 2022. Thanks to these lending avenues, the amount of credit being disbursed to the SMEs in India is rising steadily since the last two years.

 

How SMEs in India are benefitting through the financial inclusion?

With easy lending terms, flexible repayment options, and competitively lower interest rates, the start-ups and SMEs in India are getting access to easy credit which is extremely important during their developmental stages. According to a report by Morgan-Stanley, India’s e-commerce start-ups are growing at 30 percent annually and is expected to become a 200-billion-dollar industry by 2026.

In a larger perspective, this growth isn’t confined to metropolitan cities only, but the Tier 2 and Tier 3 cities of India are benefitting equally through it. A BCG report projected that these cities will account for 45 percent of total credit consumption in India by 2025. This means that the alternative lending platforms in India have provided fantastic opportunities for the SMEs to grow and capture larger portions in the global market.

Reliance Money, one of the leading NBFCs of India, is fuelling the financial inclusion of Indian MSMEs by providing Small Business Loan for SMEs. These loans are easy to avail and come with flexible tenure and convenient repayment options.