Credit and Finance for MSMEs: Partnership between banks and fintech companies is already around a five-year-old phenomenon in the country. Banks had physical reach through their network, a large base of customers and their trust, and a brand built over the years. Fintech startups, on the other hand, brought technology to digitise banks’ legacy systems at the backend and provide smarter and flexible banking for customers at the frontend. The arrangement has been a win-win for both so far that has further evolved now.
“Earlier everything would be handled by banks but now fintechs are used essentially for everything while banks are being used for disbursals. What really has changed in the past years is that relationship with borrowers is owned by fintechs whether around credit underwriting, onboarding, KYC, and more. Banks are now only capital providers,” Nirav Choksi, Co-founder and CEO, CredAble told Financial Express Online.
DBS Bank-CredAble, Kotak Mahindra Bank- Pine Labs, Federal Bank-CredAvenue, Axis Bank-Ezetap, IDBI-U GRO Capital, HDFC Bank-Paytm, SBM Bank (India)-Lendingkart, ICICI bank-Niyo and many such partnerships in the recent past and in over past five years or more had occurred largely focusing on digitizing credit disbursements to micro, small and medium enterprises (MSMEs) and enabling digital payments. As per World Bank estimates, the credit gap for MSMEs in the country has been worth $380 billion while the share of bank credit to MSMEs in the overall gross bank credit is currently around 10 percent, as per the data from the Reserve Bank of India.
“Partnerships with fintechs enable both parties to leverage the core capability across transaction banking. Fintechs ability to carry out lite integrations with customers allows one to reach out faster and drive efficiency across the supply chain. The collaboration also helps to cross-sell products across retail and corporate, making the engagement stronger than just a transactional one,” Divyesh Dalal, MD & Head – Global Transaction Services, DBS Bank India told Financial Express Online.
CredAble had earlier this month partnered with DBS Bank to cater to the capital requirements for the day-to-day operations of MSMEs and enterprises in the corporate supply chain and pump liquidity to enhance current financing options for working capital needs. “We continue to evaluate partnerships with fintechs that work across specific ecosystems and have the potential to drive significant traffic. The ecosystem play enables one to embed across the commercial value chain, which is value accretive for the MSME,” added Dalal.
ICICI Bank, HDFC Bank, Axis Bank, and others couldn’t share comments by the time of writing this report. SBM Bank (India) didn’t respond to the request for comment.
Over the years, the partnership between banks and fintech players has become stronger, thereby, accelerating financial inclusion, while cutting-edge technologies, such as Artificial Intelligence and Machine Learning, are helping out in quick digital adoption across the country. Small vendors, lacking their own bank accounts are able to seamlessly conduct digital transactions. Moreover, MSMEs in cash-dependent Tier-II and III markets, from grocery stores to neighborhood hawkers, have been able to receive money digitally through UPI systems, QR codes, and payment apps.
Reference: https://www.financialexpress.com/industry/sme/msme-fin-how-bank-fintech-partnerships-have-evolved-in-india-to-ease-lending-payments-for-msmes-others/2354400/
