A new paradigm in the delivery of credit to MSMEs in India

Recently Govt announced setting up a digital platform to bring lenders closer to SMEs in India. It is a welcome initiative to improve the access to credit and make it timely.

The Union Minister of Finance and Corporate Affairs, Shri Arun Jaitley recently launched the web portal  This will enable in principle approval for MSME loans up to Rs. 1 crore within 59 minutes from SIDBI and 5 Public Sector Banks (PSBs).

It is a described as a strategic initiative of SIBDI led PSB consortium incubated under the aegis of Department of Financial Services (DFS), Ministry of Finance. The Portal sets a new benchmark in loan processing and reduces the turnaround time from 20-25 days to 59 minutes. Subsequent to this in principle approval, the loan will be disbursed in 7-8 working days.

The press briefing describes it as a first in MSME banking credit space, is one of its kind platform in MSME segment which integrates advanced fintech to ensure seamless loan approval and management. The loans are undertaken without human intervention till sanction and or disbursement stage. A User-Friendly Platform has been built where MSME borrower is not required to submit any physical document for in-principle approval. The solution uses sophisticated algorithms to read and analyse data points from various sources such as IT returns, GST data, bank statements, MCA21 etc. in less than an hour while capturing the applicant’s basic details using Smart analytics from available documents. The system simplifies the decision-making process for a loan officer as the final output provides a summary of credit, valuation and verification on a user-friendly dashboard in real time.

 The key features of the contactless platform include:

  • The majority stake of SIDBI & big 5 PSBs- SBI, Bank of Baroda, PNB, Vijaya and Indian Bank.
  • A first for MSME borrowers-Connect with multiple banks without visiting the branch.
  • Advanced Digital Platform for MSME Financing with Services Driven Architecture and the highest level of Information Security.
  • Only Platform in the market with a Banker Interface which covers the Branch Level integrations (with maker-checker-approver) in tune with current systems of PSBs.
  • Only Platform that enables Bankers to create Loan Products in line with the Scoring models & assessment methods within their approved credit policy.
  • Only Platform that has an integrated GST, ITR, Bank Statement Analyzer, Fraud Check and Bureau Check as well as host of other features which at present is not available with any other player in the market.
  • Only Platform that has been integrated with CGTMSE for checking the eligibility of Borrowers. MSME borrower gets a loan up to Rs.2 crore without any collateral, which is a major relief for MSME borrower.
It is a game changer because access and timely are still crucial challenges for many MSMEs in India:

The flow of credit has been witnessing a steady increase over the years due to various support measures and expansion of credit delivery institutions like NBFCs, Private banks as well as expansions of branch network of public sector banks. However, still, there is a  significant section of MSMEs especially micro-enterprises who feel that they are not getting enough access to sufficient credit support.

The credit availability to MSME segment is not universal and it is variable across the banking sector. Private sector banks are intensely averse to the proposition of lending against cash flow and taking guarantees like CGTMSE(Credit Guarantee Fund Trust for Micro and Small Enterprises). They are more aggressive to lend unsecured business loan at a very high rate of interest and at a shorter maturity.

On the other hand, public sector banks are though mandated to support MSMEs in the form of extending credit to working capital as well as a term loan, the internal constraints like capital deficit; high stressed assets etc are hurdles in securing loans.

Many MSMEs have been banking with new generation private banks which are very aggressive in marketing their transaction banking facilities like Current Account to entrepreneurs. However, this is not helping them in their loan raising plan because private banks don’t lend without collateral. Most of them don’t have the wherewithal to assess the client on future cash flow projections.

To sum it, there is huge uncertainty around the process of securing the loan for MSMEs in India.

It is badly affecting the capital formation among the early stage enterprises. The entrepreneurs are not sure of tying the required funds at the most suitable timeframe for supporting their business plan.

Even within the community of public sector banks, and other state financial corporations, the decision-making process is highly subjective and it is no fait accompli that an entrepreneur should get the loan despite capable to meet/ meeting the entire requirement.

This subjectivity of decision making is a bane the MSMEs in India are being subjected to. The implications are ranging from immense economic loss, lesser employment generation, loss of opportunities for entrepreneurs, etc. As a  result, the value loss is very high and unaffordable for the country a whole. Precious time and labour of many people within and outside the organisation is getting lost in the uncertain and directionless journey of raising the funds to finance the business for many SMEs.

Nowadays, there are many DSAs(Direct Selling Agents) and the proposal for debt raising changes so many hands in a short span of time that it only damages the credit score with Credit bureaus and nothing else.

FinTech platforms can compress the time and eliminate the uncertainty:

Recent innovations in the financial technology space are truly revolutionary. There are many Fintech companies have emerged in the last 3-4 years which have created a wholly new process for credit underwriting leading to the reduction in time as well as better decision-making system.

However, these initiatives are largely confined to arranging short-term loans to meet the working capital needs of small businesses at a better speed and lesser intermediation cost. A welcome initiative

This initiative of govt expected to bring in superior value proposition in terms of lesser uncertainty, quicker visibility, and to cover a wider gamut of loans products along with assured credit guarantee for bankers. It is a win-win proposition for both lenders and bankers.


The initiative is the harbinger of the new beginning for bringing down the transaction cost and time associated with raising bank finance of MSMEs along with bringing down the uncertainty associated with it. It will strengthen their financial planning process. Govt should bring in more banks and add more products to make it seen as an anchor to promote proliferation of MSMEs.