MSME's adoption low for Fintech alternative lending despite heavy investment
Despite heavy funding for fintech start-ups in alternative lending there have been several challenges identified in the low adoption by merchants.
While funding for fintech alternative lending has grown significantly in 2015-16, there has been a low number of Micro and Small Medium Enterprises (MSMEs) that have actually been accepting it. Investment in alternative lending to merchants has seen a total investment of a high of about $220 million in 2015-16, according to recent RedSeer Consulting report.
A large 42% of the investment in Fintech start-ups has gone towards small merchant financing. Only aggregators received more investment, which was around 46%.
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However, MSME adoption has been lower than expected due to certain challenges that are still faced across the value chain, according to the report. Some of the key challenges include customer resistance to credit, lack of organised information on registered businesses, lack of financial data for risk assessment, low awareness about complex loan vehicles and low comfort with technology.
“The government, investors, and businesses have recognised the need and come up with various steps to address it. But the actual demand continues to languish far behind the expected demand,” said the report.
Anil Kumar, CEO, RedSeer Consulting said, “As RBI initiates data sharing between financial institutions, data availability will go up and current issues will reduce in magnitude. However, the gap between expected and actual demand will continue to persist as borrowers exaggerate their expected credit requirement and lenders have a hard time identifying businesses with actual financial business needs. This problem is further exacerbated as small businesses tend to mix personal and businesses needs.”