Micro, Small, and Medium Enterprises (MSMEs) play a vital role in India’s economic growth, with micro-enterprises and nano-entrepreneurs comprising 98%. Kinara Capital and Vivriti Capital address credit gaps through innovative approaches, leveraging data and technology to provide quick access to capital and elevate nano-entrepreneur
By Ritu Singh June 26, 2024, 9:05:22 PM IST (Published)
The critical role of Micro, Small, and Medium Enterprises (MSMEs) in driving economic growth and fostering financial inclusion in India is well-documented. Within this diverse sector, micro-enterprises and nano-entrepreneurs constitute a staggering 98%.
Despite their potential, these enterprises face a substantial credit gap, with only 11% having access to formal credit and barely 30% of their credit demand being met.
Hardika Shah, Founder & CEO of Kinara Capital, and Vineet Sukumar, Founder & MD of Vivriti Capital, in a discussion with CNBC-TV18, shared insights on how their organisations are addressing these challenges without compromising on underwriting or risk standards.
Hardika Shah explained that Kinara Capital has been instrumental in transforming lives, livelihoods, and local economies by providing unsecured business loans to micro-entrepreneurs through a high-touch, high-tech model. “We use a lot of alternate data to make credit decisions through our AI-ML model, allowing us to deliver decisions within 24 hours,” Shah said. This approach eliminates the need for traditional financial documents, enabling quick access to capital.
Vineet Sukumar highlighted the transformative impact of data architecture on MSME financing. “Eight years ago, shops had multiple visiting cards; today, they have a few POS machines,” notes Sukumar. Lenders now utilise data from these POS machines to provide financing and offer solutions for managing GST, payroll, and ledgers. This shift facilitates financing and elevates nano-entrepreneurs up the value chain. However, Sukumar highlighted that while credit guarantee schemes have potential, they are more impactful in secondary markets than primary ones.
Despite concerns from traditional players about unsecured business lending, Shah emphasised that the formalisation of nano-entrepreneurs through Udyam registration is a significant factor in improving credit quality in this sector.
The government launched the Udaym registration scheme in 2020 to streamline the registration process and offer various benefits and incentives to MSMEs. The benefits included priority sector lending, access to loans at reduced interest rates, etc.
Looking ahead, Sukumar underscores the importance of connecting external capital to the MSME market. “While formalising the market through Udyam and GST has been significant, the next step is to connect both domestic and international capital to this market,” he suggests. This focus could drive further growth and support for MSMEs, fostering a more inclusive financial ecosystem.
