New Delhi: Shriram Finance is looking forward to extending its MSME operations. An increasing number of non-banking financial companies (NBFCs) are looking to tap the MSME segment as competition from banks has intensified in a vehicle, gold and home loans. To close the credit access gap for the MSME market, Muthoot Finance announced small business loans on Tuesday. We are launching this initiative as a part of our strategic expansion plans and diversification, aiming to become a one-stop financial services provider. We are venturing into this initiative,” says MD George Alexander Muthoot. “To make it easy for SMEs to repay, We offer ticket sizes ranging from Rs 1-10 lakh.”
Umesh Revankar, Executive vice chairman, believes that the share of MSME loans will increase from 10.3% to 15%. Recently, NBFC’s interest in the MSME segment has also been pushed by sustained demand from small enterprises for credit. A strong government impetus to grow MSMEs and initiatives like Emergency Credit Line Guarantee Scheme, credit guarantee scheme for micro and small enterprises and Pradhan Mantri Mudra Yojana has expanded the presence of formal credit to the segment, say experts.
The latest data by CRIF High Mark and Finance Industry Development Council showed Fresh unsecured business loans by NBFCs rose 24% YoY to Rs 33,915.3 crore as on March 31. MSMEs prefer NBFCs more for their financing needs, as shown in a report by TransUnion CIBIL and Sidbi.
“NBFCs can process and disburse loans much faster than traditional lenders. For MSMEs which frequently require immediate access to working capital, a lower turnaround is essential ,” according to Nishith Maheshwari, head – of partnerships, SME business loans, InCred Finance, said. Due to predetermined industry-specific policies, the underwriting process is made more efficient because NBFCs require minimal documentation from applicants because they evaluate creditworthiness differently.
Flexiloans.com co-founder Manish Lunia believes that fintech and NBFCs enjoy success in this segment due to their differentiated underwriting and “well-entrenched” branch networks. Broadly, these entities can assess the cash flow and repayment ability of MSMEs far better than banks.
“The general hypothesis is that MSMEs are not creditworthy. I am telling you that has changed. We are now looking at MSMEs through the eye and lens of data, similar to how the consumer finance segment is assessed,” says U GRO Capital MD Shachindra Nath.
