Empowering India’s MSME sector through data-driven banking

The micro, small, and medium enterprises (MSME) sector have a crucial role in India’s economic growth, contributing significantly to various key indicators. However, MSMEs face challenges such as limited access to finance, lack of digitalization, and difficulties in competing online. Fortunately, digital public infrastructure initiatives, such as the Open Credit Enablement Network (OCEN), Open Network Digital Commerce (ONDC), and data-sharing mechanisms through Account Aggregator, offer a game-changing opportunity for banks to empower MSMEs and foster financial inclusion.

In this article, we explore how banks can use permission-based data for an MSME platform, expanding digital services beyond banking and meeting varied MSME needs. This MSME platform has the potential to accelerate financial inclusion and drive the expansion of the MSME sector. 

Facilitating Access to Alternative Finance 

By connecting banks with non-traditional sources of finance, the MSME platform offers a wide range of financial products beyond conventional banking services. For example, small retailers lacking sufficient collateral can access invoice financing through the open finance platform, obtaining the funds required for business expansion. 

Digitizing Business Operations 

Through the MSME platform, banks offer access to business software, digital payment solutions, expense management, and financial planning tools for MSMEs. This empowers micro-entrepreneurs to track expenses, manage cash flow, and generate financial reports using integrated accounting software, giving them improved control over their business finances. 

Democratizing Online Commerce for MSMEs 

Participation in the ONDC initiative empowers banks to support MSMEs in the digital commerce space. The MSME platform will help the bank become a network participant. It will also assist neighbourhood stores and small businesses in creating online shops, managing collections, offering rewards and loyalty programs, and providing logistical support. This enables MSMEs to compete effectively in the online marketplace, reaching a wider customer base, and driving revenue growth. 

Simplifying Return Filing and Tax Payments 

Traditionally, tax compliance has been a cumbersome process for MSMEs, often leading to confusion and delays. The MSME platform simplifies return filing and tax payments for micro, small, and medium enterprises. The platform can access transactional data, sales records, and expenses, making it easier for MSMEs to generate accurate tax reports and comply with regulatory requirements. The platform can have built in intelligent notification systems that remind MSMEs about upcoming tax deadlines and payment obligations. 

Unlocking Travel and Hospitality Services for MSMEs 

The MSME platform unlocks a wide range of digital services for MSMEs, extending beyond banking and finance. By collaborating with travel aggregators and hospitality providers, banks offer exclusive deals and discounts for business travel, accommodation, and even hosting. This empowers MSMEs to enhance their business networking, attend industry events, and foster partnerships, contributing to their growth. 

Enabling Trade Finance and Expanding Export Opportunities 

The MSME platform facilitates trade finance for MSMEs engaged in import and export activities. Seamless integration with trade-related platforms allows banks to offer favorable financing options for cross-border transactions. Empowered by this support, MSMEs can explore new export opportunities, tap into international markets, and contribute to India’s global trade growth. 

Enhancing Risk Mitigation  

Leveraging the MSME platform, banks offer MSMEs convenient access to various business insurance products. Whether it is property insurance, liability coverage, or cyber insurance, MSMEs can protect themselves against unforeseen risks. For instance, a micro-entrepreneur operating a food delivery business can secure insurance coverage through the open finance platform, safeguarding their business interests. 

In conclusion, the potential for data generation driven by digital public infrastructure initiatives presents a remarkable opportunity for banks to empower the MSME sector. Leveraging the MSME platform, banks can extend a broader range of digital financial products and services beyond traditional banking, catering to the diverse needs of MSMEs. Embracing this data-driven approach will not only accelerate the financial inclusion of MSMEs but also contribute to India’s economic growth and development. The MSME platform stands as a testament to the power of innovation in advancing the MSME sector and building a more resilient and inclusive economy for India.