The Credit Landscape for SMEs in India

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The Credit Landscape for SMEs in India

Key takeaways

  • PayMate system allows SMEs to extend payables and provide timely or early payments to suppliers improving their process efficiency and transparency in cash flow.
  • Fynd partnered with Rupifi to allow credit for small and medium enterprises while transacting and making purchases on Uniket-its platform.
  • Paytm enables merchants to accept payment through payment wallets, debit & credit cards, all UPI-based apps, and cash.
  • Small and medium enterprises (SMEs) take up a "minuscule 6-7% credit share and face a close gap of nearly $1.1 trillion."
  • Most of the small business loans available in India do not necessarily require any form of collateral to lend to SMEs.

Introduction

The research provides information on India's small and medium enterprises (SMEs). The research team focused on providing insights on how SMEs are getting credit and making payments to vendors. We discuss various methods used in making transactions ranging from PayMate to Paytm. Further, the research team discusses the challenges these SMEs face while getting credits and highlights the need for collateral as a qualification to get credit from banks and other non-bank financial companies. We also provide dropline overdraft and credit line products for businesses in India. We give a name of a product, the name of the company offering the product, and a brief description. All the requested information was readily available, and the research team confirmed the details by maneuvering across multiple sources before embarking on documenting.

1. Payment Systems Used by SMEs

A. [i]. PayMate


  • Enterprise resource planning (ERP) offering enterprise solutions stormed the corporate world, offering vast complex solutions, according to Ajay Adisesham, the founder and CEO of PayMate. PayMate is a fintech firm making annualized transactions of up to $5 billion. PayMate caters to small and medium enterprises by automating payables, invoicing, and receivable functions. PayMate allows SMEs to make payments and provide timely or early transactions to suppliers improving efficiency and transparency in cash flow. The platform seeks to digitize the entire procurement to cost cycles such as vendor management, supply chain financing invoicing, and vendor payments. According to Adisesham, PayMate works with existing ERP systems and tries to replace them. However, there are critical areas in which PayMate is much better. It is determined to go deeper into those spaces and co-exist with existing IT systems. PayMate had started with a business-to-customer (B2C) model but later changed to business-to-business (B2B) as the latter was advantageous in business predictability.

[ii]. Fynd and Rupifi

  • Fynd partnered with Rupifi to allow credit for small and medium enterprises while transacting and making purchases on Uniket- its platform. The partnership seeks to make it easy for SMEs in Tier 2 and 3 cities and towns to access loans. Rupifi's proprietary embedded is a lending technology powered by B2B credit to help businesses make purchases. Fynd and Rupifi ensure that SMEs have access to credit at the point of purchase (POP) and do not have adequate capital to buy inventory and grow their businesses.

[iii]. Paytm

  • Paytm launched an All-in-One Android POS device for merchants and Paytm Business Solutions. The system enables merchants to accept payment through payment wallets, debit & credit cards, all UPI-based apps, and cash. The system allows and empowers SMEs to collect digital payment across all payment methods without using an app or website. Paytm aims to simplify and digitize payment for both B2C and B2B players who make regular payments to a large number of vendors, food allowance to employees, salaries, rewards, instant refunds to customers, and other bills such as utility bills in many offices

[B]. Challenges Faced by SMEs in Getting Loans From Banks and NBFCs

  • IFC reports that SMEs take up a "minuscule 6-7% credit share and face a close gap of nearly $1.1 trillion." Systematic challenges such as reliance on past credit history and SMEs' unawareness of digital lending solutions contribute to the gap. Insufficient data about SMEs leaves their creditworthiness out and makes it very expensive, with banks opting to serve corporates leaving the MSMEs in the middle starved for access to robust capital sources. However, target government policy interventions like Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE), Micro & Small Enterprises Cluster Development (MSE-CDP, Automatic FDI route, Credit Linked Capital Subsidy for Technology Upgradation (CLCSS), Scheme for Promotion of Innovation and Rural Industries and Entrepreneurship (ASPIRE) and Scheme of Fund for Regeneration of Traditional Industries (SFURTI) have bridged the gap, although marginally.
  • Small business loans available in India, such as Mudra loan, GTMSE, Credit Linked Capital Subsidy Scheme (CLCSS), and Fullerton India Business Loan, offer loans to manufacturers easily. As part of the eligibility of these loans, the most preferred industries for the loans are manufacturing activities and self-employed retailers.

[C]. Collateral Needed by Companies to Get Credit From Banks

  • Most of the small business loans available in India, like the Mudra loan, Credit Linked Capital Subsidy Scheme (CLCSS), and Fullerton India Business Loan, do not necessarily require any form of collateral to lend to SMEs. The GTMSE requires business owners to provide collateral as their assets as a guarantee.

2. Dropline Overdraft or Credit Line Products for Businesses in India

[i]. (a). Product

(b). Name of the Company

(c). Description

  • ICICI Bank offers its customers an instant overdraft with nil collateral and instant sanction & disbursements.
(d) Links to the website and the product’s terms and conditions.

[ii]. (a). Product

  • Business Lending

(b). Name of the Company

(c). Description

[iii]. (a). Product

(b). Name of the Company

(c). Description

  • Business loan processing is hassle-free and quick, which is more than enough to boost the customer’s business. HDFC Bank offers a business loan to expand the customer’s business, pay staff, upgrade business equipment and purchase inventory.
  • (d). Links to the website and the product’s terms and conditions.

[iv]. (a). Product

(b). Name of the Company

(c). Description

  • Axis Bank provides collateral-free EMI-based business loans at competitive rates to self-employed individuals with minimal paperwork. Axis bank business loan contains competitive pricing and repayment options.
  • (d). Links to the website and the product’s terms and conditions.

[v].(a). Product

(b). Name of the Company

(c) Description

Research Strategy

The research team details small and medium enterprises and shows how they get credits from banks and other non-bank financial companies and make payments to vendors. Further, the research team showed some systems that are put into place to enable the SMEs to make efficient purchases by digitizing the entire system as invoicing and payments. We have indicated industries that obtain credits and other loans relatively quickly and whether lending companies necessarily require collateral. Further, we leveraged financial institutions that offer overdraft business loans in India. The research team selected financial institutions recognized by the media, for instance, HDFC bank. We also chose other institutions based on customer ratings on Wishfin, Indias' leading fintech lending marketplace, where these top institutions are listed, such as SBI, ICIC, and Axis. We scraped information from the following reputable and publicly available sources; Finance Budha, The Economic Times, Citi, and BusinessToday, among other reliable sources.

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