SMEs and MSMEs are the pillars of the Indian economy. They play an important role in the economy by contributing to GDP, exports and employment. But till last few years, financial institutions have underserved the SMEs which was a hindrance to the growth. The lack of ease in the transaction was one of the prime difficulties faced by SMEs until the last decade.

But the scenario has been changed now. Banking has become much faster and easier for the SME of both urban and rural areas. The great support from the Indian Government to raise the SMEs is bridging the gap and proving SMEs a whole new face. The Indian government promotes online transaction over the transaction of hard cash. Various government funded loan schemes are designed in such a way that only online transaction will function for those schemes.  The government schemes like CGTMSE, MUDRA and Stand Up India aims to upgrade the cash transaction to online transaction. All those mentioned credits transfer loan amount to the beneficiary’s bank account online which indirectly encourage online transaction. The next step taken by the government to strengthen the online transaction is the launch of TReDS in 2017. This is an electronic platform for MSMEs. On this platform, MSMEs can trade receivables and discount bills on large corporates.  

The launch of schemes is not the only step towards adapting digital transaction. With the aim of rural growth, NABARD (National Bank for Agriculture and Rural Development) plans to provide near about 200,000 point-of-sale machines in 100,000 villages. The bank accounts are made cumplusory for all citizens. The government aims to distribute RuPay cards to over 34 million farmers across India. Access to plastic money will minimise the use of cash in the business. This will have a direct impact on SMEs and MSMEs.

Considering the fact that the government is encouraging digital payments for SMEs, banks are also expanding their portfolio in digital lending to SMEs. Many of the commercial banks, nowadays are offering business loan to SMEs in 24 hours if the SME is a GST compliant SME. The online lending system has much simplified the lending process of business loan for SMEs.

Digital lending is expanding its horizons. The lending institutions are adopting digital ecosystem and automated processes to reduce the time and effort used in taking the lending decisions. In most of the banks, lending decisions are taken by algorithms. Blockchains and robotics are the new additions in the banking sector. These technologies are taking the digital lending to the next level.

The best gift of online lending to SMEs is the ‘line of credit’. With the advent of the internet in transactions, now SMEs can avail easy access to funding with a business line of credit. A business line of credit is an online lending system when the lender promises to the borrower to borrow a certain amount of money. A business line of credit is a form of a business loan and the loan amount can be used in business purposes.

The Last Lines

Lastly, we can say that the power of digital transaction is going to give a new shape to the SMEs if used in the right way. With every passing year, the digital payments are getting more popular among the SMEs. This is a real game changer of SMEs and of course the key to digitizing the economy.