New Delhi, Nov 21 (KNN) Digital lending to micro, small, and medium enterprises (MSMEs) in India has the potential to disrupt the status quo in financial services offering a meaningful market opportunity for both innovative startups as well as traditional lenders, as per a report by Omidyar Network and the Boston Consulting Group.

Report highlights that digital lending to MSMEs is projected to increase between 10 and 15 times by 2023, to between 6 and 7 Lakh Crore ($80-100 billion) in annual disbursements.

Combined with a largely level playing field in India, without dominant incumbents, a range of entrants and business models can be successful in tapping that market, it added.

The survey also shows that nearly half of MSMEs in India would use WhatsApp payments once it is fully rolled out across the country.

WhatsApp Pay was rolled out in the beta stage earlier this year, and the company recently dropped the ‘beta’ tag from its payment policies. 

While the Omidyar and BCG report focused on credit challenges for MSMEs and the opportunity for digital lending, the survey of over 1500 MSMEs also brought out the degree of digital adoption by this sector, which numbers about 60 million. 

A survey of 1,500 MSME owners with annual business revenue between Rs 3 lakh and Rs 75 crore highlighted challenges for MSMEs in growing their business due to lack of formal credit, and showed a large opportunity for digital lenders. 

India’s 60 million MSMEs–broadly defined as businesses with annual revenue up to INR 250 Cr (approximately $35 million)–make an enormous contribution both to India’s employment and its gross domestic product (GDP), report said.

Yet, they do so at levels far below that of other large nations, lagging 10 percentage points behind the US and 23 points behind China in GDP contribution.

The primary reason for this gap according to the report is that these businesses often lack access to formal credit sources, which forces nearly 40 percent of Indian MSMEs to borrow from informal sources and pay interest rates that average 2.5 times higher than rates charged by the formal sector.

The article is based on the report from : https://www.omidyar.com/news/digital-lending-msmes-poised-major-growth-india