Building the right technology engine for digital lending to high-performance MSMEs


By Abhishek Rungta, Founder and CEO, Indus Net Technologies

India’s growth story is highly dependent on its small businesses and as you read this there are over 63 million Micro, Small and Medium Enterprises (MSMEs) serving billions of people globally, while increasing our country’s GDP and employment in the process.

However, due to the lack of incentives and ‘safety nets’, the government and the RBI have failed to push our banking system to create easy lines of credit for MSME players. Naturally, this has led to a jittery group of bankers on one side and cash-strapped micro and small businesses on the other, raising serious concerns about the future of our economy.

Fintech bridges the great credit gap

Fortunately, today’s Indian tech stacks, data repositories and API frameworks – Aadhaar, UPI, eKYC, eSign, GSTN, IT, Account Aggregator, etc. – provide a much-needed answer and new-age fintech startups see no reason why all the tools available can’t be used to give MSMEs instant lines of credit.

This massive, underserved lending market is fertile ground for digital lenders to thrive on if their tech is sorted, but what makes fintech truly viable?

What’s Under the Hood of a Viable Fintech

Simply put, creating an effective digital lending system comes down to finding the right balance between what underwriters really need to know to approve a loan – risk profiles, analytics, dashboards and key data points – and what clients experience throughout the borrowing process.

If we were to zoom in a little more, good technology should allow:

Lenders should automatically assemble a comprehensive borrower profile to automate most decision tree tasks and reduce referral turnaround time.

Borrowers must go through a frictionless application and subscription process by seeking only the minimum set of credentials and consents to unlock mandatory data sources.

While seasoned product managers should be able to successfully build and implement a workable digital lending system based on this two-way approach, there are a few additional things to keep in mind when creating a a high-performance technology stack.

Streamlined for High Performance

First of all, remember that digital transformation can only affect an organization’s risk appetite and the risk function’s ability to evolve. When project managers beat around the bush replicating existing analog systems with technology, instead of using technology to solve the fundamental problems of archaic underwriting, they are simply building an inferior platform.

Second, every digital transformation replaces traditional borrower interactions with data and analytics. This requires a deep understanding of how to automatically analyze numerous data sources to create a rich borrower profile. To ensure a successful digital lending system, this data must exist, otherwise even the best code will struggle to transform analog methods.

Third, more often than you might think, the inability to deploy a new system due to poor UI/UX/EX, poor change management, and lack of training or support leads to increased complexity and, therefore, poor user adoption.

And finally, a big mistake change seekers make is when they design a new digital system around a pre-qualified vendor, thereby compromising processes, data sources and other capabilities to align with a technology partner.

Eyes on opportunity

MSMEs – which account for 40% of exports and contribute 28% of India’s GDP – are hungry for some long-awaited TLC, given that most of them don’t even have websites or full recordings. For our country’s economy to touch this $5 trillion dream, lending at scale is essential to ensure that MSMEs, the backbone of India’s economy, can thrive and grow.

While many examples of failed MSMEs without access to finance at the right time can be cited, an equally large number of success stories scripted by real blue fintech players come to mind. And having supported many funded startups through such digital transformations, I can assure you that the technology isn’t really the problem, it’s the attitude of the organization that wants to usher in the change.

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