Budget 2024: Fintech Lenders Set to Benefit from New MSME Measures
Fintech lenders are going to gain from the slew of measures that Budget 2024 has outlined to help micro, small, and medium enterprises get better access to credit. Government measures that make it easier for more credit flow to MSMEs could be a godsend for digital lending startups looking to grow.
In a major policy turnaround, Finance Minister Nirmala Sitharaman announced that the loan limit under the Mudra scheme for micro-units will be doubled to Rs 20 lakh. This would apply to those entrepreneurs who have serviced the earlier 'Tarun' loans without any dues. This could provide the wherewithal to banks to sanction higher loans to creditworthy MSME borrowers.
Alok Mittal, Co-Founder of digital lending startup Indifi Capital, said that he welcomed the budgetary measures. "The enhancement in the MSME credit guarantee cover up to Rs 100 crore is a huge booster for the industry. This, coupled with the enhanced Mudra loan limits, can enable banks to provide far more meaningful credit to trustworthy borrowers", he said.
Additionally, in the budget, an allocation was made for the public sector banking system to develop a new model for credit assessment that involves evaluation on the basis of digital footprints, with a view to facilitating small businesses which lack adequate documentation to avail loan facilities, but have developed an ability to pay their dues through the digital record.
"The new assessment model, based on digital footprint, shall open the door for easier credit availability to small businesses that otherwise struggle with meeting the many documentation requirements", noted Jatinder Handoo, CEO of the Digital Lenders Association of India.
However, not all fintech experts feel that the budget addresses every need within the MSME sector. Sanjay Sharma, Managing Director of Aye Finance, said that though the announcement of the Rs 100 crore credit guarantee fund was a welcome measure, microscale enterprises were left untouched, which are significant contributors to non-farm job creation. "More simplification of micro-loan schemes could have further supported these critical businesses", Sharma said.
The budget has also made provisions for a push to the Trade Receivable Discounting System (Treds) and increase its role. The Reserve Bank of India-backed Treds platform helps companies finance their invoices. With the recent inclusion of NBFCs into the Treds platform, it is likely to reach more firms, including smaller companies and public sector enterprises.
Speaking on the development, Ramaswamy Iyer, chief executive of supply chain financing startup Vayana, said, "Allowing NBFCs to participate in the Treds platform is a very positive extension of policy. Smaller companies will get greater access to invoice financing".
Notwithstanding these developments, experts in the sector believe that more focus needs to be placed on the implementation stage. The fintech lending community has reportedly expressed optimism that greater activity on the part of private banks and NBFCs will lend impetus to the meaningful expansion of the platform.
There is also huge potential for the digitization of land records as far as the FinTech industry is concerned. With digital land records, it will now be possible to use land as collateral in small enterprises to access capital needed for business growth.
