The third entrepreneur we met has been running a gas distribution agency for the last no credit check payday loans Dover OH 15 years. While he had taken a motorcycle loan in the past, he had never taken a business loan in the last 15 years. When Paytm approached him, he applied for a UBL of Rs2 lakh with a tenure of six months, from Capital Float. He kept repeating how he could not believe that the loan was credited to his account on the same day, and added that he always found the documentation requirements of main street banks to be very daunting. He plans to use funds for working capital needs and to rent a bigger godown to store the gas cylinders.
Most SMEs in India do not have much collateral to offer and have therefore never accessed loans from the formal banking sector
The common thread with all the three entrepreneurs is that they were unwilling to go to the main street banks and submit reams of paperwork. They were content with using their own cash flows to run and expand their business, until they were proactively approached by Payworld, in the first case, and Paytm in the other two cases. All three entrepreneurs exuded tremendous confidence in running, and growing, their own businesses. SMEs like these are the fastest growing sectors of the economy and lenders who plan to lean back and wait for these SMEs to knock at their doors are guaranteed to lose this opportunity.
The ability to look at their cashflows using data from Paytm and Payworld, combined with data on their smartphones, enabled instant loan decisions
Each of these entrepreneurs expressed their surprise at the speed of disbursement more than once. India Stack components like eKYC and eSign enabled the transactions to be completed immediately. (India Stack is a set of application programming interfaces, or APIs, aimed at enabling an ecosystem to be developed for Digital India.)
Three entrepreneurs in a country of 1.2 billion people is an itsy-bitsy sample size but it points to the enormous opportunity that lies ahead. If lending to this sector is unlocked through cash flow-based lending, it could unleash millions of entrepreneurs and lead to greater job creation. A KPMG report points out that the contribution of MSME (Micro SME) segment to GDP in some of the global economies is in the 25-60% range, while it is a mere 8% in India. However, this sector is growing faster than the national GDP and has the potential to contribute 15% to the GDP by the year 2020. More critically, for a jobs-starved economy, the employment created by MSMEs is around 28% and this has the potential to go up to 50% in the next decade.
Recognizing this fact, a number of banks, NBFCs and fintech firms are chasing this opportunity. The newly formed Digital Lending Association of India (DLAI) has attracted 39 members within a few months of being formed, and this sector has attracted significant inflows of venture capital. This promises to be an exciting journey and we plan to revisit these three entrepreneurs at the end of 12 months to see how they have progressed. Watch this space for more details.
At first, he did not believe that he could get a loan without extensive documentation, but he took a chance and applied for the loan a month ago. He was surprised at the speed with which his application for an Unsecured Business Loan (UBL) for Rs2 lakh, with a tenure of six months, and an interest rate of 24%, was disbursed into his account. While he had taken a car loan in the past, this is the first time that he has taken a business loan. He plans to deploy the loan to purchase more vegetables and to expand his business. He has plans to open another shop and also sell his own brand of green peas. Like the first entrepreneur, he too wants his loan limit to be increased soon.