MSME Growth Through Digital Public Infrastructure:

Micro, Small, and Medium Enterprises (MSMEs) are the bedrock of the Indian economy, contributing significantly to employment, industrial output, and exports. Currently, there are over 6.3 crore MSMEs in India, making it a vibrant and dynamic sector of the economy. It is not only fostering entrepreneurship but also generating new opportunities for self-employment at a relatively lower capital cost, next only to agriculture.

However, the sector has faced numerous challenges, particularly in accessing credit and integrating into formal financial systems. The advent of Digital Public Infrastructure (DPI) presents a transformative opportunity to address these issues and propel the MSME sector to new heights.

What is DPI?

As people increasingly rely on digital systems and services, the government has created DPI, comprising digital networks, platforms, and frameworks that allow citizens to exchange digital information and access digital services seamlessly. Just as real roads and bridges help to move goods and people, DPI creates digital pathways allowing people and services to interact digitally.

Its key components are:

The digital identity systems based on Aadhaar, such as e-Authentication, eKYC, eSign, and Digilocker, enabling secure and efficient verification processes for individuals and businesses;
UPI (Unique Payments Interface), facilitating seamless and instant transactions in a reliable payment ecosystem;
Data exchange frameworks ensuring efficient access to data and market intelligence based on a consent mechanism.

DPI: A game-changer for MSMEs

It offers MSMEs a pathway to overcome traditional challenges and create new opportunities for growth. By embracing DPI, MSMEs can streamline operations, access finance, reach new markets, and ultimately contribute to a more inclusive and robust economy.

Addressing Credit Issues: DPI facilitates transparent and efficient credit scoring, reducing the risk for lenders and making it easier for MSMEs to obtain affordable loans. It provides a framework for consent-based sharing of KYC and digital financial data.
Online Marketplaces: Platforms like Government e-Marketplace (GeM) and ONDC (Open Network for Digital Commerce) offer MSMEs greater market visibility and a level playing field to sell their products and services.
Greater Efficiency and Productivity: Automation and digital tools streamline operations, boost productivity, and reduce operational costs.

According to the Economic Survey 2023, the bouquet of DPI products such as e-RUPI, EWay Bill, and TReDS has created significant value for MSMEs and reduced their compliance burden.

How is DPI solving credit issues of MSMEs?

DPI addresses multiple issues that hinder MSME’s access to affordable credit by providing credible data points through a consent-based mechanism.

Easy access to financial data: The Account Aggregator (AA) framework by RBI has enabled consent-based access to financial information. Lenders can now access cash flow-related data of the borrowers and quickly assess the financial health of borrowers.
Quick access to ancillary data points: DPI enables consent-based access to GST filings, Income Tax returns, MCA filings, and Credit Bureau scores allowing lenders to assess the creditworthiness of borrowers.
Access to a central repository of data: DPI allows uploading and accessing data to central repositories such as CERSAI and CKYC portal. This ensures transparency and reduces risk for borrowers and lenders.
Ease of operations: Instruments like eNACH mandates take care of repayments/collections as the borrower’s account gets debited on the due date, eliminating the need for manual follow-ups with the business owner.

Furthermore, the use of Digilocker and Video KYC has enabled remote verification of KYC.

All these factors have led to a more inclusive credit underwriting approach and a low-cost credit delivery mechanism, making it easier for MSMEs to obtain affordable loans. We at Ambit Finvest are committed to supporting MSMEs in navigating this digital transformation and harnessing the full potential of DPI for sustained growth and job creation.