Phygital: the New Norm in SME Lending - Expert Excerpts From the Edelweiss MSME Conclave


/ -- Celebrating the spirit of entrepreneurship on International MSME Day, ECL Finance Limited, part of Edelweiss Group, one of India's largest diversified financial services, recently hosted an expert panel of eminent industry speakers to share insights and expertise on the current business environment, its challenges and what lay ahead.
In this context and in keeping in line with the UN Theme for #MSMEDDay19, the topic chosen for discussion was 'Digitalization - Is it Big Money for Small Businesses?'. The panel discussion covered the following trains of thought:

Would Digitalization help SMEs scale up and earn revenue in a sustainable manner going forward?

Would Digitalization help SMEs access credit / finance easily in order to scale up sustainably?

Or is Digitalization more of a hype and was there a need to look toward more phygital/ traditional avenues for growth and credit?

The event kicked off with a keynote address by Rashesh Shah, Chairman and CEO, Edelweiss Group in the presence of Edelweiss's leadership, clients and partners.
Speaking on the occasion, Mr. Rashesh Shah said, "India's MSME segment is one of the most potent growth engines for the Indian economy, contributing significantly to GDP and playing a vital role in employment generation and overall economic activity. I strongly believe that technology has the potential to and will eventually transform how MSMEs operate in India. Edelweiss has been one of the early adopters of technology in the lending space. We have been at the forefront of testing and adopting several digital initiatives which span customer acquisition, credit decision architecture, on-boarding and customer life cycle management, helping us stay ahead of the curve, while anticipating the future needs of our SME clients. It gives me immense pleasure to see our SME partners validate our belief in the potential of this emerging sector."

In lieu of SMEs focusing on sustainable development goals and their access to credit for the same, the discussion threw up the following key insights about the sector and its future.
Historically, India has always been a capital / credit starved economy. And in such a scenario, less than 50% of the credit available in India, has made its way to the MSME segment, with most of the credit being given to larger corporations. With the advent of technological advances, initiatives like GST and formalization of the economy, the working capital needs of MSMEs has increased. At the same time, the credit available to them has gone down. This represents a major opportunity for banks and NBFCs who can leverage this and create a new market that meets this unsatiated demand. However, just the mere hypothesis of an opportunity is not significant. Adequate investment in technology, people and in understanding prevalent and future needs of the sector and customers, is equally significant to capitalize on the potential that this opportunity represents

Digitalization is making SME business models and access to credit more viable. Digitalization as a journey for SMEs today is inevitable. With the efforts of the Government and the introduction of the India stack, this journey will intensify and will lead to a drastic change in digital transactions over the next 5 years. Digital disruption such cloud computing, analytics, machine learning and AI will help sustainable SME lending. As compared to traditional lending parameters, access to data and technologies like cloud computing can allow for easier assimilation of data that can be then crunched into meaningful insights and better customer segmentation. This would provide a more granular and in-depth understanding of a customer's risk profile and needs more optimally

India is phygital journey. In order to serve the diverse needs of the Indian market, one cannot only focus on either a digital-only or physical-only framework. It needs an ecosystem where both physical and digital can work together. Phygital frameworks have an invisible intermediary layer in between, which is the digitally assisted layer, that seamlessly aligns physical and digital frameworks together, which helps meet the unique needs of Indian customers more effectively. India by nature is an assisted economy and this culture can't be changed. Hence, if consumers can be moved from physical to being assisted and then to being digitally savvy

The Nandan Nilekani report on Deepening of Digital Payments states that digital transactions per capita data has shown a significant growth - to 22.42 digital transactions per capita at close of FY19 from 2.4 such transactions in FY14. The report further states that this metric is expected to grow by 10X in the next three years. However, India remains a cash economy. Thus, data and transaction history need to be recorded using both cash and digital transactions, which is where phygital has an important role to play in integrating cash into the digital economy

India also has the highest per capita digital data consumption rate globally and Indians are quick to adopt to technology. Thus, one can expect the physical to digitally assisted to completely digital journey to accelerate. In the current scenario, companies should be looking to experiment and learning from early loss rates, to evolve into sustainable models that may be completely digital over an extended period. These models should also be sensitive to customer data privacy laws and yet look at building insights that are future-centric and adaptable. If businesses focus on customer value, customers will adopt it

The panel discussion was moderated by Anish Chowdhury, Head Marketing and Direct Sales, SME Shared Services, Edelweiss. Eminent panellists gracing the occasion included Mr Rishi Gupta - MD & CEO, Fino PayTech; Mr Ayush Bansal - Director - Business Strategy, Razorpay; Mr Vipul Agarwal - Head Retail Risk, ICICI Bank; Mr Anand Iyer - Principal Solutions Architect at Amazon Internet Services Private Limited (AISPL) and Mr Nitin Agarwal - Group CIO, Edelweiss Financial Services Limited.
About Edelweiss Group

The Edelweiss Group is one of India's leading diversified financial services company providing a broad range of financial products and services to a substantial and diversified client base that includes corporations, institutions and individuals. Edelweiss's products and services span multiple asset classes and consumer segments across domestic and global geographies. Its businesses are broadly divided into Credit Business (Retail Credit comprises of Retail Mortgages, SME and Business Loans, ESOP and Margin Financing, Agri and Rural Finance, Corporate Credit comprises of Structured Collateralised Credit to Corporates and Wholesale Mortgages, and Distressed Credit), Advisory Business (Wealth Management, Asset Management and Capital Markets) and Insurance (Life and General Insurance). Edelweiss has a Balance Sheet of INR 53,932 cr, as of 31st March, 2019. The Group had a revenue of INR 10,886 cr and PAT of INR 995 cr for FY19.
To learn more about the Edelweiss Group, please visit www.edelweissfin.

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First Published: Jul 4 2019 | 6:25 PM IST

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