The MSME contribution to the Indian economy is undisputed in every way. As a sector, it is the 2nd largest employer of the Indian workforce; according to the 2015-16 MSME Annual Report, the MSME segment comprises well over a 45% share in contributing to manufacturing output and exports.
With NBFC startups willing to look past informal business records and lack of documentation to lead the way for MSME lending, a fair amount of work has been carried out for their forward movement. In fact, in many ways, MSMEs are beginning to be recognized for their potential for leading India into the developed world.
However, the key word here is potential. The MSME sector needs significant investments in technology, skill upgrades, and infrastructure before that potential can be realised. And for that to happen, financial inclusion of this “missing middle” (i.e. micro enterprises) is key.
The Role of FinTech with Financial Inclusion
The traditional definition classifies FinTech as ‘products and companies that employ newly developed digital and online technologies in the banking and financial services industries.’
Going by this definition, FinTech companies are uniquely qualified to drive financial inclusion for MSMEs by leveraging their access to technology and lending ability at lower costs through automation.
According to an article published in The Economic Times, “The lower and middle income segment, which comprises 47 per cent of the population, remains a potential market. Fintechs have the opportunity to cater to the lower middle income (LMI) segment with an income ranging from $2 to $10 a day and constitute roughly 600 million people. Of this, 347 million can be successfully tapped.”
FinTech companies in India have certainly taken note of this development, and as they move towards a changing paradigm of inclusion, there are certain steps they can take to facilitate that process.
- Awareness on Healthy and Digital Banking Practices
Given the target segments that FinTech companies are aiming to work with, they must take head-on the inherent wariness, distrust, or reticence on the part of the audience towards technology and provide extensive educational support with regards to healthy and digital banking practices.
- Enable Cashless Transactions
Currently, over 95% of our customers at Aye Finance use the ACH method of repayment, a process that we have spent a significant amount of time on educating them.
Enabling cashless transactions benefits the customers by reducing frequent trips to the bank and reducing the amount of cash handled, thereby allowing MSME business owners to focus on their business operations and sales.
Meanwhile, familiarity with digital banking practices and a regular track record of timely loan repayments makes these customers even more attractive for higher loan approvals.
- Develop Strategic Partnerships with Tech Service Providers
Strategic alliances/partnerships with sophisticated technology providers are a necessary requirement for establishing the last-mile connect vis-á-vis infrastructure and digital access for the deep rural population.
- Provide Vernacular Language Support
With well over 200 million regional language users, the Indian population’s needs cannot be served by English and Hindi alone. FinTech companies must develop financial products and communication keeping in mind the vernacular needs of the region.
As FinTech companies begin to recalibrate their roles towards ensuring the financial inclusion of underserved populations, we also see a definitive need for prioritizing relationship-building and the financial well-being of the population, instead of focusing purely on a transaction-based model of growth.