Reports state that 80% of MSMEs do not have access to formal credit. Even though these Micro, Small, and Medium Enterprises (MSMEs) manage to survive with constant money movement in the market, it is a double-edged sword for exporters with trade as well as capital finance. Reason? Absence of easy and fast access to loans.
Although the government enacted the Emergency Credit Line Guarantee (ECLG) scheme for loan moratoriums for MSMEs, banks have their own doubts. Unlike large corporates, stability, status, and re-payment of exporters are reasonably erratic. Over time, and with examples, this has developed a fear within banks that makes ‘exporter loan’ synonymous with ‘bad loan’.
On the other hand, exporters are discouraged to turn to banks due to immense paperwork and multiple bank visits. Technically, no one is to blame, but, in reality, the transpiring vacuum hurts the export business. In combination with the new COVID strain and Chinese product conflict, reducing export contribution reflects in the country’s economic downfall.
FinTech as a solution
One way to reduce the financial requirement as well as incurred cost for the exporter is replacing human resource with technologies that improve efficiency. This is where FinTech companies step in. For instance, when an XYZ exporter goes to a FinTech for a loan, the lender can use its system driven by data analytics and artificial intelligence to analyze the exporter’s transaction records and understand its financial strength as well as the ability to repay loans.
However, there is a catch. The exporter network cannot truly harness the power of FinTech loans without adequate government support. In India, only the Reserve Bank of India regulated Non-Banking Financial Companies (NBFCs) are allowed to provide loans under specific conditions. Here, some ease in regulations for registration, loan amounts, and interest rates could promote FinTech participation in the Indian loan sector.
That said, this is a herculean task for the government as one wrong change could invite fake lenders with lucrative schemes in the market.