Many Indian MSMEs Has Little To Zero Credit Access: Alok Mittal, Indifi Technologies

Abhishek Sharma Aug 29, 2022

The micro, small and medium enterprises (MSME) base in India is extremely heterogeneous in terms of the size and structure of the units, variety of products and services, the scale of production, and application of technology, said Alok Mittal Chief Executive Officer (CEO), Indifi Technologies in an interview with BW Businessworld. Edited excerpts:

How is Indifi helping small businesses in India post Covid-19 pandemic?

During the period of the lockdown, we were able to take certain direct measures to keep small businesses afloat. We extended support to our customers through incremental credit. Moreover, our customers had the opportunity to restructure their loans with us, provided their businesses showed promise to recover and repay.

Over the last 12 months, small businesses are showing signs of strong recovery. Indifi has developed various credit programmes to address and facilitate this.

Credit inclusion is a core goal at Indifi - for example, of our overall disbursals, 20 per cent of total loans disbursed have gone to women entrepreneurs and 25 per cent have been extended to businesses with no business credit history.

How can small businesses harness technology to earn profits, especially in rural areas where the utilisation of technology is yet to peak?

The MSME base in India is extremely heterogeneous in terms of the size and structure of the units, variety of products and services, scale of production, and application of technology.

Secondly, even while digital journeys are becoming the norm, there is a need to build a hybrid model where small businesses that are less digital-savvy can avail of human assistance to navigate these pathways.

PM Modi said that India will be a developed country by 2047. How can small businesses help to achieve this dream?

The MSME sector, predominantly small and micro-enterprises, has been considered the backbone of the Indian economy for decades. Going forward, it is also predicted to shoulder a substantial amount of advancement in line with India’s vision to become a 5 trillion dollar economy. Despite MSMEs being absolutely indispensable in the past, present, and future of India, a very large portion of the sector has little to no access to credit. This is what digital lending aims to solve.

How can we develop alternative sources of funding to solve the availability of timely, competitive credit in rural India?

While the connotation of digitisation is associated with urban India, e-commerce and such, a significant chunk of recent equity investments in the B2B space has gone to agri-ventures. This, in turn, brings the agri-sector upstream on aggregation platforms, and hence, an approach like Indifi’s can leverage this.

While the farmer may not be technologically savvy, the other players on the value chain, such as the farmer-producer organisations, can be leveraged for digital lending. In a similar manner, this benefit can also be transferred to small businesses that may not be at the top end of technology usage.

Moreover, the government has announced plans to launch a Vyapaar credit card for small businesses that are similar to the Kisan Credit card (with pre-loaded credit). These are some enabling measures that can increase credit penetration.

The biggest challenge to the MSMEs is the unavailability of timely capital. As a result, they suffer from either shrinking operations or liquefying the enterprise itself. How to fix these issues?

Conventionally, capital is supplied on the basis of data that is relatively old - such as tax returns and MCA filings. Now using technology, we are able to facilitate flow-based lending. This allows us to be more responsive to a growing business and upscale the capital available to them in line with business growth almost in real-time.

What are the major changes you witnessed in the post-Covid-19 pandemic, as far as businesses are concerned?

From what Indifi has witnessed, e-commerce businesses have grown faster than they did pre-COVID, hence the ability for them to attract debt capital has gone up. Secondly, the level of digitisation across all businesses has increased significantly. At Indifi, we’ve seen digital adoption of esign, e-nach has seen increased 2.5 times from Q1 FY 2020 to Q1 FY 2022

Also, in trading businesses, we have witnessed that they have cut down inventory drastically and operated on a just-in-time trading basis. Essentially, they procure in response to orders. This has made the overall business more efficient with respect to capital utilization.

What are the steps that the government should take to help Covid-19 hit Indian MSMEs?

The travel and tourism industry that was initially impacted by the failure of large airlines had taken a beating again during Covid-19. Now that travel is picking up again, providing working capital support to these businesses can help them ramp up.