NBFCs attract MSMEs; P2P awareness low

Reported by: |Updated: April 13, 2019

Banks are not the main source of funding for MSMEs, an article in Banking Frontiers reveals. The article quotes Sudip Bandyopadhyay, group chairman, Inditrade group of companies, which has substantial MSME business, as saying that about a fifth of MSMEs’ credit requirements are met by banks and the balance comes from informal lenders and NBFCs. “However, bank credit to SMEs has been on the decline while that of NBFCs has been rising, despite marginally higher rates by the latter,” says he, adding: “The reason for this trend is probably because NBFCs make the entire process simpler, using technology and algorithms to substitute for conventional forms of credit appraisal documents. Also, I believe that they tend to do a lot more handholding and are more approachable; this compensates for the higher rates charged.”

Bandyopadhyay says while banks must ensure more prudence that will prevent the build-up of bad loans in the future, a good way to improve finance for MSMEs is to develop the debt market and allow fintech companies greater leeway in disbursing credit. “This way money can be raised from the debt market to service MSMEs that cannot access the debt market directly. If the government and the RBI work together to achieve this goal, it will not only result in better access to formal credit for MSMEs, it will also enable greater economic grow,” says he.

Anshul Swami, head, Retail, Inclusion and Rural Products at RBL Bank, says MSMEs are not approaching new-age lenders like P2P platforms for sure. “May be a small minority should be doing so. MSMEs largely approach public sector banks and NBFCs. They also approach private sector banks. The literacy or the awareness about P2P platforms and the newer ways of acquiring funding is not much, compared to the awareness about funding options that banks and NBFCs have. There are SME-focused platforms, which are essentially meeting places of lenders and borrowers. What is significant about such platforms is that 90% of the business they do is lending further down using information supplied on the supply chain and the entities that stand to benefit are small to medium enterprises in the MSME segment. The micro segment is something very few of these platforms cater to. And their quantum of lending, compared to established players, is still very small. They are also mostly urban focused entities,” he explains further.

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