Nabin Kumar Ram, Head- Data Analytics
In a country of 1.3 Bn people, nearly 63 Mn+ businesses represent the MSME (Micro, Small, and Medium Enterprises) sector in India and contribute to 30% of the country’s GDP. These MSMEs are integral to keeping the country’s economic engine running and generating employment for millions, both directly and indirectly. Despite the sector’s vast participation in the economy, this sector struggles to fulfil its credit requirement for business growth and is not yet well-serviced by financial institutions.
However, to help MSMEs reeling under the impact of COVID-19, government’s focus on offering significant credit flow to this segment will create enormous opportunity for their growth in coming years. Furthermore, a better and more transparent tax regime through GST along with increasing levels of digitisation played a vital role in establishing digital footprint for such businesses.
Serving MSMEs financial needs through traditional underwriting models bring several challenges for them as banks and financial institutes are highly dependent on assessing creditworthiness and ability to pay, but underestimate their willingness to pay. These institutes focus on their Bureau Score (CIBIL) and a detailed audit mechanism on documentation fulfilment further damages their business finance needs.
While bigger manufacturing firms can mortgage their machineries as collateral against loans, 98% of micro businesses still remain under-served because of unavailability of adequate or any form of collateral.
NBFCs have opened their arms to fill this gap however their collective scale at present is not seeming enough to make a significant repair. That is where the alternative, technology-driven credit scoring and psychometric models can make a huge difference. Using alternate data driven models, SOLV aims to create a win-win situation with SOLV SCORE for MSMEs struggling to obtain credit and lenders unsure of MSMEs’ ability to repay. Let’s understand how SOLV SCORE works through Arjun’s journey.
Arjun, 21, has a small Kirana shop in the outskirts of Bangalore where he sells basic groceries to local villagers. His father ran this shop for 20 years and Arjun took it over after his father’s demise. Living in the digital era today and being digitally active, he wants to connect with other MSME shopkeepers and grow his business while serving neighbourhood villages and expanding his store to become a midsize retailer. However, given the fact, he has never taken a loan or held a credit card, his Bureau presence in nil. Also, at an age of 21, banks do not feel comfortable considering his loan requirement.
On the other hand, being a very focused and trusted individual based on the feedback from locals, he fulfils the requirement of willingness to pay. He also maintains a joint saving account with his father and puts some reserve money every month for rainy days. This shows his strategic planning behaviour.
With the help of SOLV SCORE, his ability to pay and willingness to pay is measured. Herein, his traditional bank statements and GST can support his ability to repay. However, a big portion of alternate data driven models with sophisticated machine learning and data analytics would help to measure his behavioural aspect on willingness to pay. His litigation attributes like pending court cases, operational attributes relating to his store and services, psychometric assessment through interactive game, data leveraged from Blockchain technologies – the factors deriving SOLV SOCRE – would provide a strong foundation for the new-age credit underwriting models employed by fintech lenders, ensuring faster and much better access to credit for MSMEs located even in smaller cities and towns of India.
Furthermore, being onboarded to the SOLV platform and through strong SOLV SCORE, he would be able to connect with a niche set of MSMEs. With transparent and smooth transactions, his business would grow in almost real time. Sustaining a strong and consistent transactional performance would not only make him best in class on the SOLV platform, it would also open the doors for his business expansion fulfilling his credit needs.
Know more about SOLV, click here.