Alternate financing can capitalise on $500 bn SME credit opportunity in India

New Delhi, Aug 24

Digitised businesses in India have a potential credit demand of $220 billion, out of which $165 billion is serviceable today after adjusting for sick and commercially unviable businesses, a report showed on Thursday.

In the next 5 years, as the number of digital SMEs doubles, the demand for credit is expected to cross $570 billion.

Even after an infusion of $53 billion in FY22 into the market through various channels, the current working capital deficit stands at $112 billion, according to the report by GetVantage and Redseer Strategy Consultants.

The deficit hinders new-economy and emerging businesses from innovating new products, creating jobs, scaling operations, and building efficiencies.

At present, the share of alternate finance is 5 per cent, which Redseer estimates can double to reach 11 per cent in the next five years owing to alternate-financing platforms.

“Small businesses account for 90 per cent of credit demand but continue to struggle to raise capital, owing to poor business metrics, limited assets, and uncertain growth projections. If the current economic and regulatory climate continues, this gap is likely to widen significantly over the next five years,” said Kanishka Mohan, Partner at Redseer.

India is home to 64 million MSMEs, which contribute to 30 per cent of the nation’s GDP.

According to the analysts, about 12 per cent or 7.7 million MSMEs in India are digitised and businesses that have been able to shift part of their operations online have been able to take advantage of new economic opportunities, cost efficiencies and achieve scale.

“The $570 billion credit requirement for digital SMEs in the next five years represents an unprecedented opportunity for Alternate-Financing platforms, NBFCs and traditional financial lenders (Trad-Fi) like banks to collaborate and catalyze economic growth by prioritizing compliance, governance, inclusion and innovation,” said Bhavik Vasa, Founder and CEO of GetVantage.

The Internet and Mobile Association of India (IAMAI) served as an industry partner for the report.