49% of Indian MSMEs still prefer traditional lending channels over digital : Instamojo

Even as India has witnessed growth spurt in the number of digital lending startups to target over 63 million small and medium businesses, traditional lending channels are still the most preferred route for accessing working capital loans. According to a report by Instamojo, an online platform for Micro, Small, and Medium Enterprises (MSMEs) to start, manage, and grow their business online, while 49% still prefer traditional sources of lending versus online platforms.

In its second edition of their Indian MSME Impact Report 2019, Instamojo has mentioned that despite the Indian government’s focus to create a digital economy, usage of cash is yet on the surge thus making it easy for businesses to tap the traditional lending channels. According to the report, total cash withdrawal in FY 2018-19 grew by 40 percent at INR 33 trillion in FY 2018-19 compared to INR 23.6 trillion in FY 2016-17.

“The MSME sector makes up for a large chunk of the Indian economy, employing more than 117 million people and contributing to making India a $5 trillion economy.  However, the sector still faces several roadblocks like the lack of tech knowledge or the absence of a skilled workforce. We at Instamojo have always worked towards empowering Indian MSMEs through various digital solutions, addressing the gaps in their growth story. Through our report, we envision to be the voice of the MSMEs by bringing to the forefront facts that will open further channels toward development” said Sampad Swain, Co-Founder & CEO, Instamojo.

Highlighting the reason behind the low adoption for online channels among the MSMEs, the Bengaluru-based FinTech startup said that although 75% of the MSMEs believe that technology helps solve major challenges pertaining to operations, the other 25% of MSMEs, however, attribute this to other factors such as unavailability of skilled labor and lack of understanding of technology.

After the implementation of Goods and Services Tax (GST) last year, an estimated 9.2 million MSMEs registered under GST which is an increase of 50% over the previous tax regime. There is a high probability that MSMEs will adopt business analytics tools given that 47% of them have adopted digital tools for business processes, payments, and online sales in India, it said.

Meanwhile, the report also said that of the MSMEs who have shifted to the digital mode, about 35% cited that ease of transaction was the major reason for the shift followed by customer preference (11 percent), and availability of data synchronization and privacy features (9 percent).

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