There are 48 million micro, small, and medium enterprises (MSME) in India. They employ more than 110 million people and make up 37.5 percent of the country’s GDP, playing a critical role in the country’s economy. Yet, only 5 percent of them have access to formal credit. Because a large portion of these businesses often lack formal financial documentation to prove income or have inadequate collateral, it is too costly and risky for large financial institutions to serve this segment. This often pushes them to an expensive, highly-fragmented, informal credit market when they need funds to operate or grow their business.
However, new technologies and data analytics are opening up new possibilities to bring these businesses into the formal financial system in a cost-effective way. Leveraging foundational pieces, such as the new digital infrastructure based on India’s unique biometric identity initiative (Aadhaar), which facilitates electronic Know Your Customer (KYC) compliance; the creation of the Goods and Service Tax portal, which tracks sales transactions digitally; and an ever-growing mobile phone penetration, innovative ways to help people access formal financial services are emerging. Indifi Technologies is one of them.
Indifi offers a unique platform that aims to expand access to unsecured credit to MSMEs in India. By combining smart data analytics and strategic partnerships with supply and distribution chain aggregators in a one-stop solution, Indifi is revolutionizing the way lenders reach and underwrite credit to MSMEs, while helping them grow and thrive.
Through partnerships, Indifi taps into multiple sources of data that are transformed into insights through smart algorithms and used to populate segment-specific score cards. Lenders can then use this information to enter new, underserved verticals, such as budget hotels, travel, and retailers, with more confidence in approving loans, especially to first-time borrowers. Indifi’s comprehensive strategy targeted at bringing long-tail MSMEs segments into the formal credit markets contributes to reducing cost of discovery and delivery of financial services to small borrowers.
Consistent with the thesis laid out in our “Big Data, Small Credit” report, innovative digital lending models that use intelligent algorithms and alternative sources of data, such as e-commerce transaction history, are also emerging to serve MSME customers. While these solutions are becoming more frequent, the current size of the market of suppliers on e-commerce portals that can be served by formal lenders in India is only about half a million MSME customers. There is, therefore, a need to further widen the scope of digital data used for the credit assessment for small businesses. Efforts like Indifi open opportunities to address the credit needs of customers beyond the top segment currently served.
An important part of Omidyar Network’s global financial inclusion strategy is grounded in the belief that reducing the high cost of assessment and verification for lenders can help millions of borrowers gain access to credit they need to invest in their future. In India, Omidyar Network has invested in Vistaar and NeoGrowth, among others, which are focused on solving this very problem from a small business’s perspective. Indifi comes to complement our portfolio and further the practice of data-driven technology to improve access to credit in India. There is traction already, as 80 percent of Indifi’s clients are first-time, collateral-free borrowers.