ROLE OF FINTECH IN FINANCIAL INCLUSION OF SMALL & MEDIUM
ENTERPRISES (SME) IN INDIA

ROLE OF FINTECH IN FINANCIAL INCLUSION OF SMALL & MEDIUM
ENTERPRISES (SME) IN INDIA

Pooja Gupta

Fintech is the application of technology in financial services, combining techniques such as hardware, software, and cloud with a financial platform like Banks, NBFCs, wealth management firms etc. The traditional banking system is going through a digital transformation with the help of these Fintech companies. These companies are acting as game changer by designing innovative digital platforms, with the common end goal of enhancing financial inclusion of SMEs. Small & Medium Enterprises (SMEs) are the engine that drives the economy and contributes to the GDP in India. These entities do not have access to easy finance due to issues like lack of collateral and credit history. Traditional financial institutions adopt a cautious process when make small-unsecured loans and moreover they prefer loans only against collateral. So there is a greater need for adequate financial support for small and medium enterprises. However, Banks are partnering with FinTech firms and are taking the entire process online to reduce the transaction cost and turnaround time. They are looking for alternative sources of data to measure the creditworthiness of SMEs. This has led to the emergence of a new sector known as alternative lending, which is essentially an online platform for lenders (retail or institutional) to lend directly to borrowers (individual or corporate). While traditional organizations evaluate balance sheets, P&L statements and other documents of the business, Fintech platforms use AI and advanced machine learning algorithms to rate the SME’s creditworthiness. Fintech platforms lay specific importance to digital data available in an ecosystem like bank transactions, cash flow, and importance is given to company ratings from credit reporting agencies. This research paper talks about how the fintech firms are contributing towards the financial inclusion of SMEs by introducing them with various financial products and a digital lending platform. It looks at the opportunities available to the Fintech sector as well as the challenges faced by them. It is a qualitative study based on an open questionnaire format. The study further looks at the specific needs of the SME sector regarding financing and how Fintech companies are bridging the gap of financing for these SMEs.

Fintech, Technology, SME, Lending Platform