India Uses Digital Tools to Help Small Businesses Get Loans
Micro, Small, and Medium-sized Enterprises (MSMEs) play a big role in boosting economies but face many challenges in getting loans. A report by the Indian Council for Research on International Economic Relations (ICRIER) and the Asian Development Bank Institute (ADBI) highlights these issues.
Challenges Faced by MSMEs
MSMEs often struggle with:
- Lack of collateral
- Difficulty in verifying creditworthiness
- High transaction costs for small loans
These factors make banks and other lenders view MSMEs as risky investments.
Current Financial Situation
A 2023 survey by ICRIER found that 70% of MSMEs in India rely on their own capital, while only 20% use bank loans as their main source of finance.
India’s Digital Solution
To help MSMEs, India is using Digital Public Infrastructure (DPI) like:
- Aadhar for electronic know-your-customer (eKYC) processes
- Account Aggregator (AA) network for secure financial data sharing
These tools help bridge the information gap between lenders and borrowers, making it easier for MSMEs to access credit.
Other Digital Platforms
India also uses platforms like DigiLocker, UMANG, and the National AI Portal to deliver public services more efficiently. These efforts were emphasized during India’s G20 presidency.
Conclusion
While MSMEs still face financial hurdles, India’s innovative use of digital infrastructure offers a promising solution to improve financial inclusion and help small businesses thrive.
Doubts Revealed
MSMEs -: MSMEs stands for Micro, Small, and Medium-sized Enterprises. These are small businesses that are not as big as large companies but are very important for the economy because they create jobs and help in economic growth.
collateral -: Collateral is something valuable that a borrower offers to a lender as a guarantee that they will repay the loan. If the borrower doesn’t repay, the lender can take the collateral. Small businesses often don’t have enough valuable things to offer as collateral.
ICRIER -: ICRIER stands for Indian Council for Research on International Economic Relations. It is a think tank in India that does research on economic policies to help the government make better decisions.
ADBI -: ADBI stands for Asian Development Bank Institute. It is a research organization that helps countries in Asia, including India, by providing knowledge and solutions for economic development.
capital -: Capital is the money or resources that businesses use to start and run their operations. For MSMEs, this often means using their own savings or money from friends and family.
Digital Public Infrastructure (DPI) -: Digital Public Infrastructure (DPI) refers to digital systems and tools provided by the government to help people and businesses. In India, examples include Aadhar and the Account Aggregator network, which help make financial services more accessible.
Aadhar -: Aadhar is a unique identification number given to every Indian resident. It helps in verifying a person’s identity and is used for various services, including banking and getting loans.
Account Aggregator network -: The Account Aggregator network is a system in India that allows people to share their financial information securely with banks and other financial institutions. This helps in getting loans and other financial services more easily.
