Tedious process, lack of awareness lead to this
Though Bengaluru has a large number of credit-oriented fintech companies, micro, small and medium enterprises (MSMEs) in the city lack access to formal credit facilities.
The issue is pronounced in the Peenya Industrial Area, one of the largest industrial hubs in the country, with more than 5,000 units. According to the Peenya Industries Association (PIA), 95 per cent of these units are MSMEs, with about 3000 of them being members of the association.
H.S. Sreenath, a manager at PIA, informed The Observer: “We largely rely on nationalized banks and some private banks for our credit needs, though there are bottlenecks in reality. Many banks come here, conduct workshops and try to get us to access their loan schemes. But when the companies approach them, there are always issues regarding formalities and required documents….. There is always something that we aren’t aware of.”
Lack of awareness and complicated formalities are the major barriers for MSMEs to gain access to credit, Sreenath added.
Fintech refers to companies that use technology to provide financial services. Google Pay, Paytm are some well-known fintech companies.
“Some fintechs had approached us via phone calls, to talk about providing paperless loans. However, when we asked them to approach us formally with information on letterheads, they never called back,” Sreenath added.
Some companies in the area are wary of fintechs, while others are open to the idea.
“Our company has had no scope of expansion since Covid. So why would we get a loan in the first place? Even if we do, the regular bank is more reliable than a startup,” said D. Srinivas, executive-marketing at Soni Special Steels and Alloys (India) Pvt. Ltd.
Shankar N. M of NMS Enterprises, on the other hand, is open to the idea. “MSMEs are majorly troubled by the lack of working capital and at the same time not receiving their payments on time. Especially for a non-tech startup, or even mechanical companies, the margins of profit are merely 10 per cent. So they don’t have too much to offer in terms of security to avail loans. If fintechs can solve this, one can consider (their offers),” he said. “Smaller loans, like personal loans or loan on credit cards, are easier to get, so maybe such mechanisms would work to gain working capital for such units.”
Working capital is the money needed by a company to manage its day-to-day expenses, either for buying raw materials, to maintain inventory or even to pay off short-term debt.
Rajath Kumar, associate vice-president of marketing at Capital Float, Bengaluru, said: “We would work with industry bodies and associations to inform their members (SMEs) of our financial offerings. We found this to be an effective way of expanding our reach and cutting through the clutter. We would place our advertisements in the periodical magazines published by these associations and implemented several ‘Below-The-Line’ activities.”
“Back then, the challenge was to inform SMEs of the merits offered by fintech companies as, traditionally, SMEs had a set way of availing credit. We employed various content and brand-led marketing activities to build awareness among SMEs,” he added.
D. P. Danappa, treasurer at PIA had a different opinion. “No matter who it is, they will be seeing the companies’ CIBIL scores and turnover. So ultimately the scope of availing loan from anyone gets limited. Also, it matters if they provide lucrative interest rates,” he noted.
CIBIL scores are three-digit numbers given to an individual/organisation, indicating their creditworthiness, or their credit payment history, based on which they can get loans in future.
There are several schemes from the National Small Industries Corporation (NSIC) to boost credit facilities for MSMEs. The Raw Material Assistance against Bank Guarantee scheme provides funds to MSMEs’ raw material providers without asking for any security in return. Additionally, NSIC has signed several MoUs with various banks to facilitate loans for the enterprises.