Promoting Digital Marketing and Innovative Lending in MSME Industry

Abstract

Micro, small and medium enterprises play a key role in driving economic activity, innovations, and job creation in most developing and developed economies while working with a low capital base. Timely access to credit at affordable cost is essential for MSMEs to expand their operation and benefit from economies of scale. Micro enterprises that account for almost 99% of all MSMEs do not benefit from economies of scale because of the small size of operation. Availability of finance at minimum cost will help these enterprises expand their operation and also upgrade their technologies to become globally competitive.

Private Banks find it difficult to cater to the MSME segment as it is often very price sensitive. When the banks push the costs of personalized service and non-financial services to customers, it naturally drives up the cost of access to finance. Investments in technology and meeting mandatory compliance requirements of the Central banks are also pushing up the costs (MVIRDC W. T., 2019). Digital lending platforms help to utilize technology and to create unique customized loan products. SMEs are invariably keyed into bigger supply chains, whether as suppliers or customers. Because of the nature of these businesses, they confront various challenges in an emerging economy, one of which is a lack of access to formal means of finance. While providing possibilities for MSME firms to receive timely loans at affordable rates of interest can be a key driver in economic growth, it can also be a successful business opportunity for local/regional and even foreign banks. (Jagtap, 2019).

The presence of risk in loan transactions, particularly in the priority sector where this component is considerably more essential, highlights the fact that the reach of financial services is determined by the collateral that borrowers may give. A lack of collateral impedes the introduction and expansion of formal credit services, restricting the sector's development potential. It will be impossible for strong, viable financial institutions to emerge without an adequate collateral structure. As a result, resolving or minimizing the issue of loan collateral will surely aid in the expansion of MSMEs' financial markets. (MVIRDC, 2019). The aim of this study is to explore the current landscape of digital lending of private banks towards the MSME sectors and also identify various constraints faced by MSMEs while taking loan and to facilitate end to end digital banking solutions to expand their operations and benefit from economies of scale. Additionally, this study also emphasis on how digital bank loans influence the MSME sectors.