Online lending platforms have not still made significant inroads into the SME sector as lower awareness about the platforms and lower user satisfaction is keeping the growth restricted.
Digital lending platforms like Indifi, Capital Float and NeoGrowth Credit have an addressable market of $200 billion for providing short-term credit for around 60 million MSMEs and the size of the opportunity is $20 -30 billion if one takes only the digitally-savvy SMEs. However, the online lenders have not been able to make a headway into the SME market, finds RedSeer consulting.
A survey of SMEs revealed that digital lending accounted for only 12 per cent of the short term loans availed by them. NBFCs had the largest share of 43 per cent, banks 23 per cent and informal sources 22 per cent. A large percentage - 78 per cent - of these short term loans were for working capital needs, 18 per cent supply chain finance and 3 per cent online seller finance.
Among the SMEs, 41 per cent were not aware of online lending platforms. Even among the remaining SMEs who were aware of them, 40 per cent had not tried online credit. “SMEs are fairly comfortable online but many are still unaware of online loan offerings, pointing to an opportunity for a player to fill this gap. Additionally, the gap between awareness and usage of online loan offerings could indicate a hesitation to try out. Players can leverage this opportunity by demystifying their offerings and portraying heir ease of use,’ said RedSeer.
Even among those who had tried these loan offerings, only 36 per cent were satisfied; a large majority of 64 per cent indicated their dissatisfaction. Lengthy application forms and high interest rates were the two main factors that were keeping them away from online loans. Hidden fees, inflexible tenure and lack of clarity were the other reasons.
With rapid growth of marketplaces across sectors like travel, restaurants, hotels and e-tail, partnership models with marketplaces have been successfully used by a few players for building awareness and driving loan origination in last couple of years. Additionally, a mix of hybrid online and offline delivery which has been used by various players in last couple of years, could hold the key to driving improvement in the application process experience for MSMEs, which could catalyze further adoption. RedSeer expects a lot of innovation in both marketing as well as delivery from the part of the players in the coming days.