Fintech
MSMEs: Budget 2024: Fintech lenders in focus as finance minister announces slew of measures for MSMEs
Government push to ease credit flow to the micro, small and medium enterprises (MSMEs) sector in the budget is likely to give a major boost to digital lending startupDigital lenders focused on SMEs are looking to leverage credit guarantee programs to reach small businesses more effectively. They also hope to deepen their engagement with banks and non-bank financial institutions (NBFC) to focus the government’s attention on unsecured credit to SMEs.
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Finance Minister Nirmala Sitharaman has said that the loan limit under the Micro Unit Development and Refinancing Agency (Mudra) will be doubled to Rs 20 lakh for entrepreneurs who have successfully repaid their previous ‘Tarun’ loans. Under the Mudra scheme, Tarun loans are offered in the range of Rs 5 lakh to Rs 10 lakh per applicant.
“The MSME credit guarantee coverage of up to Rs 100 crore is a big boon for the sector. Also, with the increase in the limit for Mudra LoansBanks can now offer larger loans to good-quality borrowers, which is always desirable,” said Alok Mittal, co-founder of digital lending startup Indifi Capital.
Sitharaman said public sector banks will help develop a credit scoring model to support small businesses based on their digital presence.
“The new model of SME credit assessment by public sector banks, which is based on digital fingerprints, will help small businesses without extensive documentation get better access to credit,” said Jatinder Handoo, CEO, Digital Lenders Association of India.
Sanjay Sharma, CEO of Aye Finance, another lending startup, pointed out that microenterprises that generate the bulk of non-farm employment have no specific mention in the budget, except for a little trickle-down from the Rs 100-crore credit guarantee fund. So, some simplification of these microlending schemes would have been helpful.
Within the broader MSME sector, the government wants the Trade Receivable Discounting System (Treds) to start playing a larger role. The Reserve Bank of India-backed Treds platform helps businesses get finance for their invoices.
“This is the right extension of the policy keeping in mind that the RBI recently allowed NBFCs to participate in the Treds platform. This move will open the floodgates for a large number of smaller companies, including public sector undertakings, to access this platform,” said Ramaswamy Iyer, CEO of supply chain finance startup Vayana.
Industry insiders also stressed that while policy decisions have been made regarding Treds, the industry needs to create mechanisms to start welcoming small businesses.
“We should see more private banks and NBFCs coming into this space, onboarding more customers, and that’s when the platform will grow significantly,” said the founder of a fintech lending startup.
Overall, with the digitalization of land registry records, Fintech financiers We believe that many small businesses can now hold land as collateral and access capital, which is essential for their growth and expansion.