Data intelligence: Empowering MSMEs' credit accessibility

Data is the new oil– famous words spoken by British mathematician and data science entrepreneur Clive Humby are proving more valid than ever in the modern-day environment. Effective data gathering and intelligence impact are not limited to well-established and giant companies. 

In fact, it is equally crucial, if not more, for Micro, Small, and Medium Enterprises (MSMEs). This is primarily because MSMEs are often unrated; therefore, opacity increases borrowing costs or imposes collateral requirements. As a result, MSMEs end up having only expensive financial options, which given their size, is not optimal, to say the least.

Apart from that, MSMEs are usually founded by skilled entrepreneurs but with small-scale capital. They face multiple challenges in accessing and securing long and short-term capital, market and revenue realizations, cost management, and statutory compliance. In addition, given that most MSMEs opt for informal financing methods, their documented credit history is usually not at par with industry standards. Result? They end up getting stuck in the vicious cycle of a costly credit system as well as requirements for hard collateral. 

However, with digital interaction picking up at a rapid pace worldwide, the majority of businesses have taken the digital route. In this context, government bodies are also introducing new initiatives every day to give digital integration a much-needed boost. These steps and approaches have opened up new and futuristic avenues for MSME credit assessment. 

Against this backdrop, here are a few ways Data Intelligence can empower MSMEs' credit accessibility: 

Deciphering credit worthiness by assessing digital footprint 

Over the last few years, the lending and credit landscape has evolved drastically. More so with the pandemic-borne realignments. While earlier there were only specific ways for a business to create a healthy CIBIL score, now there are several new-age ways. Considering that in the current times, most MSMEs conduct their business online or make payments online, GST payments are online etc, they leave a digital data trail behind. With the help of Data Intelligence combined with advanced technologies, a business's digital footprint can be used to decipher its credit worthiness. 

AI and ML are paving the way for the alternate lending score 

Conventional lending institutions, including banks, usually have a traditional assessment system. Simply put, small businesses and specific population segments were often left underserved during the old regime due to lack of financials or collateral . However, with the advent and advancements of digital technologies like Artificial Intelligence and Machine Learning, several fintech institutions have effectively bridged the gap leveraging alternate data to provide much sharper and dynamic credit risk assessment. These fintech institutions harness the power of AI and ML combined with Data Intelligence to assess the potential of a business in real-time, making unconventional but informed lending decisions. 

Digital Intelligence helps in reducing risk factors and boosting accuracy 

The alternative credit scores derived from leveraging Data Intelligence, AI, and ML, rely on continuous and real-time feedback. Depending on the customer satisfaction and retention factor somewhat helps assess the probability of MSMEs' success. Constant feedback thereby increases the accuracy of the assessment. This score provides the financier with a robust assessment tool that can reduce the price risk remarkably. Furthermore, it improves the chances of MSMEs landing much-needed capital. 

Bottom Line

Undoubtedly, Data Intelligence and AI & ML have proved pivotal in paving the way for faster credit accessibility. They solve the core and crucial problems of up-and-coming MSMEs battling challenges like working capital and supply chain finance. These technologies have created an encouraging credit environment for a broader range of lenders, including MSMEs, by providing alternative lending scores and means that don't solely rely on traditional assessment scores. 

Today MSMEs contribute approximately 30% of India's overall GDP. Additionally, it employs around 11 crore people and constitutes about 40% of the total exports. In many ways, the growth of this sector is helping India reach its ultimate potential. And fintech institutions leveraging Data Intelligence and other futuristic technologies are outstandingly supporting this growth.  

The article has been written by Meghna Suryakumar, Founder & CEO, Crediwatch