Building The Right Tech Engine for High-Performance MSME Digital Lending

By Abhishek Rungta, Founder & CEO, Indus Net Technologies

India’s growth story depends heavily on her small businesses and as you read this, there are over 63 million micro, small, and medium size enterprises (MSMEs) serving billions of people globally, while boosting our nation’s GDP and employment in the process.

However, owing to the lack of incentives and ‘safety nets’, both the government and the RBI have failed to push our banking system to create easy credit lines for MSME players. Naturally then, this has led to a bunch of nervous bankers on one end and cash strapped micro and small businesses on the other, raising serious concerns about the future of our economy.

Fintech Bridging the Great Credit Divide

Thankfully, today India’s tech stacks, data repositories and API frameworks—Aadhaar, UPI, eKYC, eSign, GSTN, IT, Account Aggregator, and more—provide a much-needed answer and new age fintech startups see no reason why all the available tools can’t be utilised to empower MSMEs with instant credit lines.

This massive and underserved market for loans is fertile ground for digital lenders to thrive on if their technology is sorted, but what makes financial technology truly viable?

What’s Under the Hood of Viable Fintech

Simply put, creating an effective digital lending system boils down to hitting the right balance between what underwriters really need to know to approve a loan – risk profiles, analytics, scorecards and key data points – and what the customers experience right through the borrowing process.

If we were to zoom in a bit more, good tech should enable:

Lenders to automatically stitch together a comprehensive borrower profile to automate most of the tasks in the decision tree and reduce turnaround time for referrals.

Borrowers to go through a friction-free application and underwriting process by seeking only the minimal set of identifiers and consents to unlock mandatory data sources.

While seasoned product managers should be able to successfully build and implement a viable digital lending system based on this two-sided approach, there are a few additional things to be kept in mind when creating a high-performance tech stack.

Streamlining For High-Performance

First up, remember that digital transformation can only go as far as an organisation’s appetite for risk and the risk function’s ability to evolve. When project managers beat around the bush by mirroring the existing analogue systems with tech, instead of using tech to tackle the core issues of archaic underwriting – they are simply building a sub-par platform.

Second, every digital transformation switches traditional borrower interactions with data and analytics. This requires a deep understanding of how to automatically parse numerous data sources to create a rich borrower profile. To ensure a high-performance digital lending system, that data must exist, else even the best of code will struggle to transform analogue methods.

Third, more often than believed, the inability to deploy a new system due to poor UI/UX/EX, insufficient change management, and lack of training or support leads to increased complexity and as a result, poor user adoption.

And finally, one big mistake change-seekers make, is when they design a new digital system around a pre-selected vendor, thereby compromising processes, data sources and other capabilities to align with a technology partner.

Eyes On the Opportunity

MSMEs – accounting for 40% of exports and contributing 28% to India’s GDP – are craving for some long-overdue TLC, given that most of them don’t even have websites or full-fledged registrations. For our nation’s economy to touch that USD5 trillion dream, lending on scale is the need of the hour to ensure that MSMEs, the backbone of the Indian economy, can flourish and grow.

While numerous examples of MSMEs stalling sans access to financing at the right time can be cited, an equally large number of success stories scripted by true blue fintech players come to my mind. And having handheld many funded startups through such digital transformations, I can assure you that tech isn’t really the issue, the attitude of the organisation wanting to usher in change, is.