Small and medium-sized enterprises (SMEs) are often cited as the major driver of economic development, employment, and innovation. They employ almost two-thirds of the global workforce, represent ninety percent of all businesses, and account for more than half of the global GDP. However, ensuring adequate funding has always been left the gap between SMEs and growth. As per the report of International Financial Corporation (IFC), a funding gap of around $5 trillion exist for formal SMEs and $2.7 trillion for informal and vulnerable SMEs. While traditional bank lending has been the most crucial source of finance for SMEs and entrepreneurs, there is a pressing need to develop a system overcoming the credit constraints such as lengthy on boarding time due to manual processes, ineffective data monitoring, and portfolio management, lack of customization to cater a broad array of businesses, manual regulatory and compliance policies and lot more. Recent advancement in digital technology and novel business models of banks is a game-changer in easing SME loan processing by the banks.
The digital transformation by the banks has enabled them to streamline the disjoint processes for SMEs financing and to deliver a prompt and effective solution to their customers. Technology automates the end-to-end lending process. It helps customer acknowledge their credit risks and needs. Additionally, the traditional method has a lot of other overhead issues that can be mitigated by an end-to-end online system in the mentioned ways.
1. The remote, faster, and touch less on boarding process for SMEs.
2. Faster deployment of novel solutions by leveraging native low-code capabilities.
3. Accelerating flow of information by bridging data and process silos with digitized automation platform.
4. Accurate underwriting by big data analytics.
5. Reduced loan optimization and disbursement time using pre-defined algorithms.
6. Less turnaround time and operational cost with rule-based process engine.
7. Using artificial intelligence and machine learning to automate mundane tasks.
8. Using a real-time dashboard to accurately track loan lifecycle.
9. Remote access to capital loans for businesses by a line of credit through digital channels.
10.Reduced discrepancy and human bias by accurately assessing risk with minimal documentation over a virtual, contactless interface.
Owing to the technology and innovation, a major challenge can be addressed:
Lengthy documentation and verification process
Digitization and automation of lending solutions by banks have streamlined the cradle-to-grave loan cycle for SMEs from prospecting to underwriting, disbursement, and servicing. It has saved the intensive task of paperwork and visiting the premises which leads to unstructured and scattered processes consuming a lot of operational time for them.
Streamline the unstructured process
Digital solutions to lending by banks with low code and cloud capabilities, help them to stay ahead of the curve and provide automated end-to-end finance solutions to SMEs. Its process becomes fast, transparent, agile for small businesses. It has streamlined the unstructured process of financing building cross-functional, empowered decision-making and seamless customer experience with customized offerings to SMEs.
The fully automated approval process for SMEs has proved to be reliable for risk managers. Years of root-cause analysis of defaults, assessment of soft factors, long-standing policies, and manual decision processes have made banks wary of providing loans to SMEs. Discrepancies and human biases have been eliminated by the use of new-age technologies and, thereby mitigated the risk analysis for SMEs. With the use of rich risk data by advanced analytics, banks can generate simplified financial statements, affordability ratio, and supplier concentration analysis in real-time cutting the disbursement time and operational cost.
Partnership with the fintech helps banks in getting themselves equipped with modern technologies and products which allow them to tap into the SME lending marketplace. Fintech helps in creating a software platform to integrate data from varied sources and execute automated credit decisions for SMEs.
It is necessary to stay afloat in time by adopting modern technology to empower the lending process for small businesses. Digitization has bridged banks and SMEs by adopting a systematic approach and automating the manual process. It also empowers the growth of SMEs with the development of modern Omni channels and risk tools to stay ahead in the current competitive era. Moreover, it has reduced the vulnerability of credit market conditions, strengthen the capital structure of banks and allow seizing the of instant growth opportunities by small and medium enterprises.
Views expressed in this article are the personal opinion of Gaurav Anand, CEO & Co-founder, Namaste Credit.