SME financing
The underdogs
Fintech lenders are challenging banks
Small businesses are avoiding taking loans from Government banks and non banking finance companies (NBFCs). Paperwork, bureaucracy and bad customer service drive businesses away. About 80% of small businesses do not get formal finance.
Fintechs are filling the gaps of formal finance. After the crisis NBFCs are not able to offer loans to small businesses. Banks are also cautious due to high level of non-performing assets. Banks do not differentiate between borrowers. Fintech lenders aim to make disbursing easy and paperless. Lenders such as Razorpay X, SME Corner, U Gro Capital give equal weightage to small and big borrowers.Non-collateral lending is an example of easy and accessible finance for small businesses.
As per Business Standard: Samir Bhatia, CEO, SMECorner. Banks’ lack of interest or inefficiency to lend small-ticket loans is a major crowd puller for fintechs. “Banks won’t want to lend a Rs 5 lakh loan as the work involved in processing the loan is the same as the large-ticket loan,” he pointed out. Currently, fintechs have the bandwidth to lend even a Rs 5 lakh loan and go up to over Rs 50 crore, a range that banks may not find economical.
Finctech lenders hold 1% of India’s loan market. The present market size is $7bn (INR 56000 cr). Boston Consulting Group (BCG) predicts that online lending market will be worth $1000bn by 2023.
