Fintech lenders are likely to be major beneficiaries of initiatives set out in Budget 2024 in ensuring better access to credit for micro, small, and medium enterprises. The new policies will act as a big fillip to digital lending startups that look at scaling up operations.
In a major policy shift, she announced that the Mudra scheme loan limit for micro-units would be doubled to Rs 20 lakh. The increase will apply to those entrepreneurs who have repaid their earlier 'Tarun' loans. The move is expected to allow banks to sanction larger loans to credible MSME borrowers.
Alok Mittal, Co-Founder of the digital lending startup Indifi Capital, hailed these changes in the Budget. "The increase in MSME credit guarantee cover to Rs 100 crore is a big positive for the sector. Along with the increased Mudra loan limits, it will enable banks to sanction more significant credits to reliable borrowers", said Mittal.
In the budget, provision has been made for public sector banks to develop a new credit assessment model using digital footprints. The model is aimed at assisting small businesses that have less documentation but strong digital records of financial transactions. According to Jatinder Handoo, chief executive officer of the Digital Lenders Association of India, this was one very critical model: "Digital footprint-based assessment will facilitate easier access to credit for small businesses that find it difficult to cope with the extensive requirements for documentation".
Some fintech professionals, however, feel that the budget really does not cater to all requirements of the MSME sector. Sanjay Sharma of Aye Finance said that though the announcement of the Rs 100 crore credit guarantee fund is a welcome step, microscale enterprises key non-farm job creators have not been singled out for special attention. "Further simplification of the micro-loan schemes could have done more for these vital business entities", Sharma said.
The budget has also put an accent on the enhanced role for the Trade Receivable Discounting System, Treds. It is a Reserve Bank of India-backed entity that aids firms in availing financing against their invoices. With the induction of non-banking financial companies into the Treds platform, it could now expand its umbrella to cover small and medium-sized firms and public sector enterprises.
Hailing the development, Ramaswamy Iyer, the CEO of the supply chain financing startup Vayana, said, "The participation of NBFCs in the Treds platform is a big-ticket policy move. It will give access to invoice financing to more and more small companies".
Notwithstanding these development, experts emphasis that there must be an equal emphasis on execution at the ground level. The growth in participation from private banks and NBFCs will lead to healthy spread of the platform, believes the fintech community.
Digitisation of land records is another initiative holds bright opportunity for the Fin-tech industry. With the digitization of land record, now SME can easily leverage their property to avail the required capital to grow and scale the business.