Guest Article

Looking beyond big banks: why India’s SME community needs secure, alternative lending platforms more than ever

Jesse Chenard, CEO, MonetaGo

Even before the coronavirus devastated the economies of many countries, India in particular suffered a spate of fraud to its banking sector that resulted in the collapse of some of the largest players in the space. In the first half of this year alone, there have been 42 cases of bank fraud reported to India’s Central Bureau of Investigation.

With the country’s financial infrastructure already under immense strain – Goldman Sachs estimated a 45% economic decline between April to June – the onset of a global pandemic brought wide-ranging and unprecedented stress to many companies. Among these, SMEs have been hit the hardest.

With the traditional line of credit from big banks a risky option as more continue to go under, or succumb to fraud – just the other week, it was found that cases of fraud at two banks totalled 100crore – small businesses needing cash, are looking for alternative routes to liquidity.

Alternative lending platforms and factoring companies are fast emerging as a viable source of cash for the small businesses that so badly need it. India Factoring is one such platform, serving small to medium sized businesses across India, giving them a line of liquidity.

Yet, the problem of fraud in invoice financing in alternative lending routes is still as much a possibility as it is for the incumbent banks. With small businesses having less big banks to choose from in getting a line of credit, there is a race to make the cash flow alternatives from alternative lenders as secure and efficient as possible. The issue of fraud in receivables financing is a barrier to overcome in ensuring this security.

Fintech MonetaGo leverages blockchain technology to identify and halt fraudulent activity across financial workflows. Among these is invoice financing, traditionally highly susceptible to fraud due to its paper-based nature.

Tapping into the need for India’s small business community to gain access to urgent credit, MonetaGo is working with one of the country’s alternative lending platforms, India Factoring, to provide its secure finance solution to enable real-time fraud mitigation in invoice financing. This move will enable India Factoring to reach a swathe of small businesses.

Small companies in India have been hit particularly hard by COVID-19. This has certainly contributed to the India’s economy suffering acutely, as its SME sector employs over 110 million Indians and contributes nearly 30% to India’s GDP. However, there is an opportunity to seize the unique attributes blockchain technology can offer to ensure the highest levels of security in financing solutions that could save small businesses.

The need for alternative routes to funding is clear and urgent in India and the immediate focus should be to make those as secure and efficient as possible. Many alternative finance companies in India are already recognising this and are underway in their integration of technology to their services. If applied at scale, India’s small business community can not only survive, but thrive and the platforms that support them can lead the way for other countries to follow suit.

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