Covid Crisis Sabotages Small Businesses

FinTechs boost paperless transactions through branchless banking

Covid Crisis Sabotages Small Businesses
Raj N 04 May 2021

Last year's events have had a significant impact on businesses irrespective of their level of establishment, thereby, making it difficult for organisations to manage their finances in a lucid manner. The foreclosure and closure of various businesses have had a brutal impact on economies around the world. Unfortunately, the impact on small businesses is quite harsh as they have little leeway to deal with sudden downturns. While having a good business plan is crucial for entrepreneurs, so is financing, with it being of paramount importance for the stability of a business.

Start-ups play an important role in the economy and are often a catalyst for radical innovation. However, the Covid-19 crisis has limited its emergence, questioned its ability to survive, and put a spanner on its growth. Many FinTechs, like the rest of the financial system, have risen to the occasion and are aiding small-scale business owners in response to the financial crisis. Each FinTech company is responding to a number of unique challenges. According to reports by BCG and FICCI, India's FinTech industry valuation is estimated to reach a valuation of $150-$160 billion by 2025.

Ideally, small and medium-sized businesses depend on the cash flow generated by their business, as well as working capital loans or term loans to provide credit for the growth and maintenance of the business. Small business loans are a kind of filler to provide short-term cash flow. Due to the Covid-19 pandemic, many banks and credit institutions are taking steps to make lines of credit more widely available. Even for businesses registered with MSMEs, the government offers programs such as loans to SMEs starting four months after the loan is taken. Such programs and more give you a moment of relaxation and also help you financially for the time being. Companies have even introduced innovative credit card offers so that your day-to-day expenses can be taken care of.

Despite economic uncertainty, most venture capitalists expect their investments to outperform the main equity indices and still fund new ventures. Venture investment by super-angels and angel networks rose 24 per cent from 275 a year ago to a new record of 341 in 2020, according to a recent report by the Private Equity and Venture Capital Association of India.

Covid-19 has accelerated digital lending not only in India but globally. By introducing non-traditional sources of credit to a credit-starved population and small businesses, FinTech lenders are helping people get easy access to capital. In the current system, traditional credit models render themselves ineffective because they are not designed to measure and thus pose an obstacle for SMEs to make money. Legacy systems are more expensive compared to FinTech companies that have a low- performance model designed to cut costs. There is also a lack of flexibility in this system.

Digital innovation and technology have made it possible to create an instant digital lending system that consumers can access through their smartphones without entering a bank. The advent of FinTech in lending has changed the perception of credit by introducing innovative solutions such as short-term loans, instant mobile credit, easy and flexible EMI options, paperless documentation, and no credit score requirement. Digital lending began with the need to overcome traditional pain points, which were extensive, time-consuming, manual, and complicated. Thanks to digitalisation, the lending process has become paperless and relatively faster. Many of these loans can be approved right away, paving way for small businesses to be financed in a couple of days or even a few hours.

FinTech start-ups question the current situation and offer an alternative to traditional banking channels for access to financial products. They implement "immediately after unpacking" business models that use technology to provide financial services in a cost-effective, fast and convenient way.

The author is Founder, Zaggle and ZikZuk

DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.

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