Uncovering the Credit Impact of MSME Digital Adoption

Following the demonetization, the pandemic pushed consumers and business owners toward the widespread adoption of digital payment methods. The number of digital transactions is expected to reach 7422 crores in FY 2022, an increase of 33% from FY 2021. The most widely used form of digital payment is the Unified Payments Interface (UPI), and this trend is apparent in the latest data from India’s National Payments Corporation. Over 2 billion UPI transactions valuing INR 3.86 lakh crore, were processed every month in India in October 2020. But in October 2022, 7 billion UPI transactions were executed.

Micro-transactions play a significant role in India, a nation with approximately 6.3 crore MSMEs. FinTech players are meeting the needs of the ever-expanding MSME sector through a variety of measures, including digital acquisitions, low-cost payment devices, new peer-to-peer lending like UPI, QR codes, and differentiated technology and operational platforms. After the pandemic, the micro, small, and medium-sized enterprise (MSME) sector benefited greatly from digital payment platforms. It has offered consumers cashless and contactless payment methods, which has aided small and medium-sized enterprises (SMEs) with simplified record keeping.

Importance of Digital Lending Platforms for Micro, Small, & Medium-Sized Enterprises

In recent years, Indian policymakers have prioritized supporting micro, small, and medium-sized enterprises (MSMEs). To aid its members in entering new international markets, the Federation of Indian Export Organisations (FIEO) has released a business-to-business (B2B) digital marketplace. The Reserve Bank of India (RBI) has established a framework to geo-tag the payment structure touchpoints as a part of its efforts to build secure payment gateways, and it has also launched a number of programs to encourage small businesses in India to accept digital payments.

E-commerce platforms demonstrate the company’s financial stability and capacity to innovate and stay competitive in a fast-paced market. As more and more micro, small, and medium-sized enterprises (MSMEs) move their operations online, a verifiable computerized trail of transactions is being laid for modern FinTech lenders to use in determining whether or not to offer loans. Digital transaction data is replacing various cash flow management tools and statements.

Credit for small and medium-sized businesses can be obtained quickly and easily using cash-flow-based financing strategies. Those businesses that have avoided getting formal credit in the past owing to the inconvenience will be able to qualify for a loan and reap the benefits with digital transactions. The MSME borrower’s credit history improves when they make on-time digital payment loan repayments, thereby increasing their future access to traditional bank loans.

Learn How MSME Digital Adoption is the Path to a Bright Future

According to the India Trend Book Report 2021 by the Indian Private Equity and Venture Capital Association (IVCA) and E&Y, digital payment transactions are expected to increase from INR 2,153 lakh crore in FY 20 to INR 7,092 lakh crore in FY 25 as a result of the expansion of retail electronic payment systems like National Electronic Fund Transfer (NEFT), and mobile banking. According to another analysis by KPMG, the value of India’s digital payments market is projected to reach 4,323.63 trillion rupees by FY 2024, representing a yearly growth rate of 22% from FY 2020 to FY 2024.

Credit products in India are adapting to meet the changing demands of digitally savvy small and medium-sized enterprises. Financial statements are the current gold standard for large NBFCs when determining a small business’s creditworthiness. Lending choices are already being made using other data sources for risk assessment. Small businesses in India will benefit greatly from the assessment based on digital transaction data since this will assist in closing the MSME credit gap. As a result, India’s financial inclusion story will be bolstered as a new group of unserved and underserved customers will have access to the official credit system.

Ways Through Which Digital Technologies Help MSMEs Expand

Growing a small or medium-sized enterprise is difficult for several reasons. It pressurizes to remain competitive in a constantly developing digital landscape while also dealing with restricted resources and a lack of accessibility to certain technologies. Fortunately, SMEs who utilize digital technologies have a better chance of succeeding in spite of these challenges with:

Better visibility

Increasing their online presence through the use of digital tools can help MSMEs stand out in a crowded marketplace. Digital adoption, including social media and SEO tools, can support micro, small, and medium-sized enterprises (MSMEs) to access a wider audience and gain more clients.

Streamlined operations

Processes can be simplified by digital adoption, which can also increase operational efficiency for MSMEs. Digital adoption, with the use of cloud computing and automated technologies, can help MSMEs cut costs and increase efficiency.

Stay in the lead

Adopting digital tools can provide micro, small, and medium-sized enterprises (MSMEs) an advantage in the competition. Businesses may maintain their edge over others and improve their ability to seize opportunities by utilizing the latest trends and technologies like cryptocurrencies.

Also Read: Small but Mighty: Tech Stocks in the Spotlight with SME IPOs

Increased resource accessibility

MSME digital adoption increases access to resources that were previously out of reach. Businesses can acquire access to data analytics, cloud computing capabilities, and technologies necessary for expansion through digital lending platforms.

Reduced operating expenses

Last but not least, using digital technologies can reduce operating expenses for SMEs. Using digital technologies, businesses may cut costs and boost profits.


Small and medium-sized enterprises (SMEs) that aim to expand their operations in 2023 and beyond are increasingly using digital technologies. CRISIL found that when COVID was implemented, 47% of micro-enterprises and 53% of SMEs in India embraced digital sales platforms, up from 29% before COVID. Half of the micro, small, and medium-sized enterprises (MSMEs) have adopted new technology like video conferencing applications for use in their everyday operations. They can benefit furthermore by using digital solutions in several ways, including increased exposure, streamlined processes, and access to previously unavailable resources.

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