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How fintech start-ups can help Indian MSME traders

10/02/2022 4 Min Read

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The impact of covid-19 not only acted as a catalyst for the increased adoption of fintech by businesses but also paved the way for an era of financial inclusion. The rise of fintech came to the rescue of Micro, Small, and Medium Enterprises (MSMEs), one of the hardest-hit segments, especially in the first wave because of the pandemic-induced dampened economic activities, supply chain ructions, etc.

As per the MSME annual report 2020-21, 36% of the MSMEs operate in the trade sector, 33% in the other services category, and 31% in manufacturing. Considering the valuable part they play in the country’s economic development; there is a growing need for MSMEs to start leveraging modern technologies such as artificial intelligence, machine learning, big data, blockchain, and application programming interfaces (APIs). These contemporary means will aid these small businesses to automate key processes and compete globally.

Fintech to the Rescue

Fintech plays a significant role in offering companies services related to payments, lending, investments, trade finance, insurance, advisory services, pensions, and customized financial solutions with complete transparency, security, and real-time merchant tracking. Now, the covid black swan event has directed companies to look at a digital and cloud-first infrastructure that isn’t merely limited to availing credit.

Today, fintech start-ups provide an array of services that will enable MSMEs to concentrate more on the business operations side rather than worry about the other trivial aspects. Applications that have facilities such as real-time insights from financial data, cash deposit and withdrawal, money transfer, savings, insurance, travel, digital payments, and government benefits have proven beneficial for improving productivity.

Besides financial services, MSMEs need assistance in tax compliance, and favourable government policies are being introduced in this regard for the fintech and MSME sectors. The provision of APIs by the government has made it easy for businesses to avail real-time information on taxes and businesses without maintaining separate accounts for tax purposes.

Fintech & Growth of MSMEs

The promotion of the growth of the underdogs holds significance in any economy, and India is no exception, especially where MSMEs contribute over 30% of the country’s GDP, as reported in the MSME annual report 2020-21. However, MSMEs face a frequent issue of delayed payments, which hampers their working capital and cash flow cycle.

An exemplification of a fintech application in this regard is the provision of platforms for invoice trading. The Trade Receivables Discounting System (TReDS) electronic platform facilitates the firm’s financing through multiple financiers. Even the deployment of blockchain technology in trade financing is proving to be highly efficient in a way where a framework for letters of credit enables settlements, thereby leading to the enhancement of fintech. Blockchain technology is used for checking double financing in TReDS, thereby reducing the cost of credit.

Limited Access to Funds

Digitisation has helped small businesses to engage in cross-border trade, and the rapid growth of e-commerce has provided them with an added advantage. According to the Indian Ministry of Commerce and Industry, 30% of MSMEs have their own websites or have collaborated with various e-commerce platforms. Unfortunately, this sector continues to grapple with the limited access to funds being generally constricted through the requirement of collateral for credit from banks. From constantly updating their algorithms to assess credit risk, providing MSME traders with export financing solutions, tracking shipments, digitally processing loans, and minimizing paperwork and bureaucracy, fintech companies are coming up with innovative solutions to aid MSMEs.


As per data obtained from the MSME annual report 2020-21, Indian MSMEs account for 48% of annual exports. This showcases the immense scope fintech has to improve and help Indian exports reach their optimum potential. Needless to say, positive externalities arise from the growth of MSMEs, and an important one is undoubtedly the increase in employment opportunities and upskilling of labour. For fintech firms to innovate further and offer more services, the already increased mobile and internet penetration in India, especially in the rural areas, needs to be improvised so MSMEs can easily access modern technologies.

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Pushkar Mukewar

CEO/Co-Founder at Drip Capital

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