Micro, Small and Medium Enterprises popularly known as MSME comprises of nearly 60 million businesses responsible for a substantial amount of economic growth in India. Before reading forward, it is best to know about what is MSME at first. Contributing to 95% of the Indian economy’s manufacturing output, this sector also generates employment for nearly 80 million people. Now, due to the lack of data and financial transparency in the MSME sector, there is a fear in lending to the MSMEs, which is apparent in the way the Financial Institutions have underserved it. Today technology allows us to transcend the limitations otherwise faced in sanctioning loans to the MSMEs. FIs (Financial Institutions) will now be able to sanction MSME loan without collateral.
The creditworthiness of MSMEs can be determined with the help of their digital footprint via GPS, SMS and Facebook. This can provide banks with valuable insights into establishing an enterprise’s creditworthiness. However, for the process to work, the account books need to be adequately maintained, and the digital credit trail has to be revealed with utmost transparency. The problem usually faced by MSMEs or small businesses is that they face the limitation of ‘thin-file’ which is a term for the inadequacy of available information to result in a lending decision.
To facilitate msme loan for new business, it is important for lenders to devise a new form of credit rating which will be derived from the analysis of digital footprint of MSMEs. The data will be analysed to establish its authenticity as well as to ascertain the eligibility of a business for MSME loan without collateral. The lender will be able to get an insight into the relevant aspects of a borrower’s life by monitoring the customer’s SMS messages, GPS location on smartphones, Facebook activities and online shopping history. This study will reveal the borrower’s personality, reliability, intentions and ability regarding the repayment of the loan. Several government-backed schemes can even get a small business loan without collateral. Before applying for a loan, read about business funding eligibility and documentation.