A study on MSME

digital lending &

Fintech strategy.
Group - 6
Definition & Role of Micro ,Small & Medium
enterises
Definition:
Micro Enterprises: Investment in plant and machinery or equipment does not exceed ₹25 lakh and
turnover does not exceed ₹5 crore.
Small Enterprises: Investment in plant and machinery or equipment does not exceed ₹10 crore and
turnover does not exceed ₹50 crore.
Medium Enterprises: Investment in plant and machinery or equipment does not exceed ₹50 crore and
turnover does not exceed ₹250 crore

Role of MSMEs:
MSMEs play a vital role in the Indian economy. They contribute around 42.6% to India's total exports
and employ over 120 million people. MSMEs are also responsible for a significant share of India's
exports. They contribute around 31% to India’s GDP.
MSMEs are the backbone of the Indian economy and play a crucial role in generating employment,
promoting regional development, and contributing to the country's export earnings.
MSMEs are at the centre of India’s growth story :

● Backbone of India’s economic structure that accounts to 45% of total industrial

production.
● Of the 64 million registered MSMEs in India, only 14% have access to credit.
● Banks & NBFCs address less than 15% of the total credit demand.
● Digital lending set to become 1.3 Trillion $ market in India by 2030 enabling
MSMEs greater access to funds.
● Agreements, collaborations and partnerships are expected be key growth
strategies adopted by the market players in the next 5 years.
● Among the MSMEs, only medium sized MSMEs are served by the financial
institutions given their stable cash flow & creditworthiness.
Current challenges in the system:
Current eco system in MSME space :

● Banks & NBFCs

● Govt Initiatives : SIBDI, Mudra, CGSTME,
ONDC : Open network for digital commerce - To promote sales.
OCEN : Open Credit enablement Network - To promote credit.
● Fintech lending companies : Incred, Capital float, Lending kart etc
● E-Commerce Platforms : Amazon, Flipkart,
● Industry associations : CII, FICCI, State level MSME associations
● Digital payment Providers: Paytm, Phone pe, Google pay etc
● Enterprise resource Planning Providers: Tally, Khatabook etc
● Tech start ups: Solutions for supply chain Mgmnt
● Trade associations & Chambers of Commerce: MSMECCI
● Credit bureaus & other agencies : CIBIL, Experian, Equifax, CRIF etc
 Fintech broad strategy :
● Room to innovate to stand out in the crowd using latest and cutting edge technology like AI,
ML & Blockchain based smart contracts.
● Collaboration in line with Govt Initiatives by being an active member of ONDC & OCEN
platforms & also with banks, financial institutions, payment aggregators etc .
● Customer centric approach by designing solutions that address specific needs & pain points of
MSMEs.
● Data analytics, Automated loan application & disbursements.
● Regulatory awareness & implementation to ensure compliance.
● Agile methodology & quick adaptation to changing market dynamics and customer
requirements.
● User feedback mechanism to maximise platform usage satisfaction at all times
● Collaboration with Insurtech to offer insurance products to MSMEs.
● Scalable cloud infrastructure & Eco system Collaboration.
● Continuous Innovation & Adoption.
y strategic points of Implementation :

Customer Engagement and

Customer Acquisition and Risk Assessment and
Compliance
Onboarding Scoring

● Alternative data basis ● Cyber security measures

MSME’s social profile and ● Data Privacy and Compliance
● credit scoring ● Customer engagement
Digital onboarding & KYC
● Blockchain for Smart through Chat bots
by using AI & ML for instant
contracts ● Collaboration with Insurtech
KYC verification
● AI driven decision making by for bunding of other products
● Mobile first approach, POS
implementing predictive ● Education and training
machine cross sell
● analytics through Edtech to provide
API integration with Govt
● Robotic Process Automation ( financial literacy
Initiatives
RPA) ● Regtech for Compliance
● Data Analytics for portfolio automation
management to mitigate risk.
● Data Analytics for portfolio
management to mitigate risk
Lending Product suite to MSMEs using AI &ML & blockchain :

● Quick business loans Integrating AI models into lending platform

for instant credit scoring and decision making.
● POS, QR code based lending Ex: Bharatpe
● Invoice financing.
● Supply chain financing using smart contracts
● Merchant cash advance based on future card sales.
● Peer to Peer lending by third party integration.
● Business credit cards to Owners for petty cash management, other
expenses etc
● Bundled Insurance products alnong with Insuretech
 New Age Model Using AI & ML Technology in MSME Credit Assessment
Data Collection and
Preprocessing
AI in Data Sourcing: Utilizes
web scraping, data mining, and
NLP for efficient data source
identification and extraction from
diverse sources like financial
reports and business directories.
Data Enrichment &
Compliance: Enhances datasets
with additional relevant data,
while ensuring privacy and
compliance with data protection
laws.
Real-Time Data Collection:
Employs AI for continuous data
monitoring, offering up-to-date
financial insights.
Data Preprocessing
Techniques
Cleaning & Transformation: AI
automates the identification and
correction of data errors, transforming
data into a usable format.
Normalization & Quality Checks:
Standardizes data scales for consistency
and conducts quality checks for data
integrity.
Data Integration & Reduction: Merges
data from various sources for a unified
view and reduces dimensionality to focus
on key information.
Feature Selection and Model
Selection
Strategic Feature Selection: AI algorithms
identify the most predictive features for
creditworthiness, such as financial metrics
and industry-specific variables.
Model Selection for Risk Analysis:
Chooses the most effective models, like
logistic regression or random forests, for
credit scoring and fraud detection based on
the lending scenario.
Model Training &
Evaluation
Training with Advanced
Algorithms: Utilizes advanced
machine learning algorithms for
training models to accurately predict
loan defaults and classify risks.
Comprehensive Model Evaluation:
Employs various metrics like
accuracy, precision, and recall to
assess model performance, ensuring
reliable and fair credit decisions.
New Age Model Using AI & ML Technology in MSME Credit Assessment
Model Deployment &
Continuous Monitoring
Deployment in Real-Time Systems:
Integrates AI models into lending
platforms for instant credit scoring
and decision making.
Ongoing Monitoring and Updates:
Continuously tracks model
performance, adapting to new data
and market conditions for sustained
accuracy and compliance.
Ethical Framework &
Decision Thresholds
Ethical and Fair AI Practices:
Adheres to principles of fairness and
transparency, mitigating biases and
ensuring algorithmic accountability.
Adaptive Decision Thresholds: Sets
and adjusts decision thresholds based
on risk appetite, market trends, and
regulatory requirements, balancing
loan approvals with risk management.
Feedback Loop for
Optimization
Performance Tracking &
Retraining: Regularly collects and
analyzes loan performance data to
identify areas for improvement,
retraining the model to adapt to
changing patterns.
Bias Detection and Correction:
Proactively seeks out and corrects
biases, ensuring fair and equitable
credit assessments across different
demographics.
AI , ML & Blockchain Based Loan Processing and
Tracking- A snapshot

Initial Setup Digitization of KYC Loan

Records Compliance Application

Loan
Monitoring and loan agreement & Verification and
disbursement
Servicing terms based on Approval
based on Aadhar
smart contracts
OTP
execution

Loan Repayment regulatory

and Closure Compliance
 Data security & Privacy
● ISO 27001: Global standard for effective information management, demonstrating commitment to data protection and
preventing security breaches.

● PCI DSS Compliance: Protects cardholder data during payment transactions, ensuring the implementation of necessary
security measures to prevent data breaches.

● Anti-Money Laundering (AML) and Know Your Customer (KYC) Compliance: Mandatory adherence to AML and
KYC regulations is a must for fintechs.

● Consumer Credit License: Mandatory requirement involved in consumer lending or credit-related services.

● Smart contracts in blockchain lending can automate and enforce lending agreements.
These contracts execute automatically when predefined conditions are met.
They are executed on the blockchain, ensuring that the lending terms are adhered to without relying on a centralized
authority.
This minimizes the risk of fraud and human error in the lending process.
Data Analytics & Insights on Blockchain technology in Indian Market :

● Technological barriers - Under penetrated infrastructure

● Organizational barriers - Lack of skill based workforce
● External barriers-legal & regulatory challenges as on date
● Knowledge barriers-Lack of blockchain knowledge
● Security barriers - If its not decentralized
● Financial investment barriers in adopting blockchain technology -
Lack of financial resources at MSME end.
Block chain road map ahead in India for MSMEs :

● Creating awareness by policy makers, regulators, change agents

● Development of nation wide indigenous blockchain infrastructure
● Reduction of technological barriers by investing in digital
infrastructure
● Promoting continuous research & development by Govt
● Building confidence & trust in SMEs
● Education & training to increase awareness through edtech platforms
Summary :
● Credit gap in MSME Space is a larger problem to address.
● Current ecosystem to address the problem is not enough.
● Fintects, small finance banks, neo banks are emerging by using latest technologies like AI &
ML
● Lot of fintech based products can be leveraged using digital platform to reach the desired
scale & also through collaboration & partnerships.
● Blockchain usage adoption can address multiple problems like data transparency,
Immutability, security etc
● How ever, Blockchain acceptance has multiple challenges and needs many layers of support
system to establish before it takes off.
● Once the acceptance of CBDC, an initiative of RBI takes off then the blockchain based
lending model in MSME space will gain importance and success.
Thank you !!!