The micro, small and medium enterprises sector contributes almost 30 per cent to India’s GDP, providing 21 per cent of overall employment. How this sector deals with and survives the cataclysmic Impact of the pandemic may well determine our country’s economic future.
A 2013 Economic Census found that more than 81 per cent of India’s micro, small and medium businesses are self-funded, with about seven per cent functioning on credit accessed via traditional banking institutions or the government.
Fintech, or financial tech, investment has seen a 60 per cent increase in India, from $919 million in 2019 to $1,467 million in 2020. According to RBSA Advisors, this makes India the biggest fintech destination in Asia. The role of fintech in the Indian economy has gained further relevance due to the pandemic and the ensuing liquidity crisis. Most businesses, especially smaller ones, had only enough cash for a few months of payments and purchases. But with the help of fintech, business owners can access their bank accounts, manage cash flow, make payments, get loans etc. Here are a few ways in which fintech is helping small businesses survive the pandemic.
- Alternate credit scoring: Unlike traditional banking organisations, finch companies employ data from various digital platforms to understand consumer behaviour for credit risk assessment. This has made the lending landscape for small businesses more inclusive and equal.
- Availability of small loans: Fintechs also offer small-ticket loans, which are perfect for small businesses with urgent business requirements. It usually takes between 10-15 minutes to disburse the loan and are available at low interest rates.
- Enabling digital transactions: The pandemic has changed the shopping experience, shifting every phase of the buying process to the digital sphere. A significant change has been the wide adoption of digital payments by buyers and businesses. By accessing digital payments, small businesses managed to stay afloat when physical interactions were impossible.
- Lessons from the first wave: Having faced dire circumstances during the first wave, India’s financial sector has been somewhat prepared to weather the second wave. Even traditional banks have taken the effort to set up elaborate digital platforms to aid digital lending, online transaction, account management and other banking facilities with ease.
With traditional practices failing to stand the test of the pandemic, the world and the economy are turning to new sustainable options. The shift towards adopting financial technology is an example. Along with providing easy access to credit, fintech also helps fill the funding gap, aids business competitiveness and, most importantly, offers Indian products access to the global marketplace.