Empowering MSMEs Through Digital Lending

India is one of the fastest growing economies in the world. It is a major hub for investments in various sectors from several countries. The focus on digitization initiated by the Government of India has taken off over the past decade for both individual citizens and business firms. The initiatives for business is already transforming the way commerce is conducted and is expected to position the country among the top seven globally to go entirely digital. However, this cannot be done by ignoring the unorganized, small and medium scale enterprises. Several aspects and functions of business are now monitored and regulated digitally. The procurement of funds to run the business is no exception. There is significant scope for digital lending platforms to fund MSMEs (Micro, Small and Medium Enterprises) who are ill-equipped to deal with the procedures and lead time involved. These platforms often serve as ‘white knights’ to firms in distress. Digital lending platforms have gained in prominence recently as there is a funding crisis in India due to a sharp downturn in the banking and non-banking- financial services (NBFC) sectors. Access to funding, at viable cost and when needed has become a critical success factor for the MSME sector. Digital lending as an industry by itself or a segment of a broader industry owes its growth to the power of IT and acceptance of digital financial transactions by regulating authorities like central banks. IT has made evaluating creditworthiness smarter and quicker. The increased penetration of smartphones and websites has enhanced access to customer data (individual and corporate) and processing at speeds not experienced before. This gives digital lenders a competitive advantage of efficient evaluation of credit risk in lending to MSMEs and start-ups. The focus of this paper is the study of traditional lending practices for MSMEs and identifying the potential for digital lending to the MSME sector in India.