Technology is helping to improve credit access for small and medium enterprises (SMEs) in India. SMEs face difficulties obtaining credit due to inadequate financial records and high risks, but new fintech platforms are using alternative data and analytics to streamline lending. Capital Float, a case study example, uses digital data from e-commerce sellers to quickly provide working capital loans to SMEs. While credit gaps remain, partnerships between banks and fintechs as well as growing data availability are expanding credit availability and reducing costs for SMEs in India.

1. IS TECHNOLOGY AIDING CREDIT ACCESS?
PRESENTED BY
SHARANYA MENDON

2. AGENDA
 Small and Medium Enterprises (SMEs)
 Credit Problems
 Changing Technology
 Case Study on Capital Float
 Looking Ahead
 Conclusion

3. Technology is Aiding Credit Access
YES

4. Small And Medium Enterprises
(SMEs)
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION

5. Source: MSME Annual Report, 2019
BROAD OVERVIEW OF SME SECTOR IN INDIA
PARTICULARS CONTRIBUTION TO SMES
Number of SMEs in India 42.50 Million units
Employment Opportunity 106 million persons
Products More than 6000
GDP Contribution 6.11%
SME Output 45%
SME Exports 40%
Bank Lending 16%
SME Growth Rate 10%
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION

6. WHO NEEDS CREDIT AND WHY?
I want to increase my stock and
modernise the store
I want to have a seating
arrangement at my restaurant
I want to increase my stock
I want funds to open a bookstore at
my pump
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION

7. MAJOR ASPECT OF TAKING CREDIT
30%
23%
18%
16%
7%
6%
% of Surveyed SME Respondent on Application of Loan Capital
Maintain Cash Flow
Reserve/Cushion
Inventory
Investment in Equipment
Debt Repayment
Real Estate Structuring
Source: HBS
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION

8. REASONS FOR CREDIT ACCESS IS TOUGHER ON SMES
SMEs are inadequately prepared
to apply for credit
Cost of capital is higher because
of difficulty in assessing risk
accurately
SMEs require flexibility in
payment options
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION

9. CREDIT GAP IN SMES SECTOR
1.06
3.38
1.92
2.8
1.23
3.95
2.17
3.12
Rs. 50 Lakh - 1 Crore
Rs. 1 - 5 Crore
Rs. 5 - 10 Crore
Rs. 10 - 25 Crore
0 1 2 3 4 5
TicketSize Rs. In Lakh & Crore
Jun'18 Jun'17
Source: MSME Pulse Report, TransUnion CIBIL and SIDBI
11.3%
12.6%
17.4%
16.9%
Year-on-Year Growth (in%)
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION
}Opportunity for
Fintech

10. NEW AGE DIGITAL PLATFORMS
Source: Company Website
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION

11. CREDIT PROCESS
Application for
Loan
Discussion to
understand business
Queries related to
credit risk assessment
Assessment
Collecting documents
from borrower
Disbursement Final call on
credit appraisal
Reference check of
supplier or customer
BANKS
Days
1 - 2 1 - 12 3 - 12 1 - 4 1 - 2
1 - 20 - 41
Takes 6 – 27 Days
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION

12. CREDIT PROCESS
Online
Registration
Discussion with
credit officer
Document Upload
Filling in the
application form
Login Creation
Document
Pick-up
Personal
reference check
ALTERNATELENDERS
Disbursement
of Loan
0 +
0 - 1
Days
1 - 2
1
Takes 2 – 6 Days
Shorten the process
time by at least 30%
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION

13. Less paperwork and
forms
Automated Credit Risk
Assessment
Crowdfunding and P2P
lending models
Improved User
Experience Real-time Tracking Faster loan disbursals
SME LENDING IS BEING TRANSFORMED
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION

14. ADVANCED ANALYTICS HAS HELPED TO BRIDGE A RATING GAP
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION
MODEL RISK ASSESSMENT
TRADITIONAL
ALTERNATE
Traditionally risk modelling used to be the preserve of
large financial institutions. Entrenched requirements
and constraints leading to static models
Only a small set of SMEs has been rated by credit rating
agencies Many have been excluded on a prima-facie
basis
Newer risk models are dynamic and adopt machine
learning to become smarter which is a significant
advantage over traditional models which often
required a change in processes and regulations which
left many out of reach of credit
Analytics and newer risk models being developed also
give lenders the ability to better securitize their loans
with low-risk bundling

15. Source: Capital Float
Digital Intermediary
E-commerce sellers
SME
Lending Start-up
Re-payments could be directly from
the intermediary through deduction
Alternate lenders use the
data for risk assessment and
provide funding to the SMEs
The digital intermediaries provide data
on past performance and expected
performance of SME partners Want more ‘quality’ applicants for loans
and better data for risk assessment
Require funds for working
capital of E-commerce seller
Want more sellers and the sellers
to offer more stock for sale
DIGITAL INTERMEDIARIES PROVIDE DEEPER DATA FOR
RISK ASSESSMENT
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION

16. START-UPS EXPANDING THE SME SECTOR
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION
LendingKart has to used $32 Million to strengthen data science capabilities,
enhance technology platform
KredX provides handholding support to potential borrowers at the early
stages of the loan process in order to bring customers
NeoGrowth uses records of card transactions on from PoS/EDC machines
to understand the repayment ability of retailers looking for a loan
LendingKart can make disbursals immediately after the photographs of the
signed documents are sent for processing by the field executive
Handholding and Market activation
Technology First
Data Assets
Agile Systems and Processes

17. CASE STUDY: CAPITAL FLOAT
Business Model
Source: Capital Float.com
Key Partners
Products
Objective
Revenue StreamsKey Activities
• Term Finance
• Supply Chain Finance
• Pay Later Finance
• Proprietor Loans
• Online Seller Finance
• Franchise Finance
Creating flexible and short-term
loan solutions for SME Sector
• Interest Income
• Fee – Based Income
• Purchasing Inventory
• Servicing New Orders
• Optimising Cash Flows
Value Proposition
• Tailored Products
• Hybrid Marketplace
Lending Mode
• Data Analytics
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION

18. CASE STUDY: CAPITAL FLOAT
Business Model
Comparison Chart
Capital Float PSU Banks
Loan Tenure 1 – 60 Months Not less than 1 year
Preclosure Penalties None 5% of Loan
Repayment Options Flexible EMI only
Advertised Interest Rate 18% - 24% 14% - 16%
Processing Fees upto 2% 2%
Hidden Charges None Varies
1500
2500
4500
6000
0
1000
2000
3000
4000
5000
6000
7000
2017 2018 2019 2020E
Total Disbursals (in INR Crores)
Total Disbursals
Source: Capital Float.com
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION

19. LOOKING AHEAD
 Banks tie-up with the
Fintech Players are
increasing to reduce
the credit gap from
50% in 2017 to 35%
in 2019
 Example:
Economy
Forecast
RBI Decision Competition Tie - Ups
• At an average age of
29, India will be
nearly a third of the
global workforce by
2020.
• Indian economy
expected to touch $5
trillion by 2025, SMEs
are bound to be
largest contributor to
that grown economy.
• The RBI has asked
Banks to evaluate the
restriction of cash
credit from 20% to
25% to SMEs
• Banks are being
competitive by not
only providing credit
access in simpler and
quicker way but also
providing value-
added services,
mentorship,
guidance and
support system
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION

20. CONCLUSION
 SME rely on short term liquidity needs which is to maintain cash flows and net earnings in
business
 Lack of supporting financial information infrastructure limits the ability to lend in SMEs Sector
 Fintech has become one of the most powerful tools to support SMEs and thus sustainable
economic growth
 Today, SMEs can apply for business loans anywhere through any device and at anytime without
carrying physical documents to any branch
 Technology has improved SMEs access to capital and financial management, this create
structure of an optimized business landscape
SMEs CREDIT PROBLEMS TECHNOLOGY SOLUTION CASE STUDY LOOKING AHEAD CONCLUSION

21. THANK YOU