NEW DELHI: State Bank of India (SBI) will prefer the co-origination model to cater to the financing needs of MSMEs and collaboration with fintechs is a good idea as it helps in assessing the risk profile of the borrower in a better manner, its chairman Dinesh Kumar Khara said on Saturday.
Pointing out that the Micro, Small and Medium Enterprises (MSMEs) are constrained today in terms of cash flows, time gap in realising receivables, among others and also the level of lenders’ confidence in funding them, Khara said collaborating is a better model than lending directly to MSMEs.
“The fact of the matter is that today not many NBFCs have come in this space. And of late, when it comes to finding solutions, we feel that apart from lending directly to the MSMEs, there is a way forward in terms of collaborating with these NBFCs along with the biggest fintechs who have the ability to process the structured and unstructured (financial) data to have a better sense in terms of assessment of risk,” Khara said.
Based on that assessment, he said, bankers feel very comfortable in lending to the MSMEs.
He was speaking at a webinar on financing the unfinanced organised by the Global Alliance for Mass Entrepreneurship (GAME).
There could also be another option of financing based on the cash flow and not on the basis of balance sheet because very often it is observed that the balance sheet and the financial statement are not available in a form which is expected by any banker, he added.
Also, there is a broad spectrum of MSMEs in the country which work in a host of areas and often the kind of financial information coming from them is not very organised, Khara explained.
So to the extent where the data is fully organised, which is more like any other large corporate, it is the kind of spectrum which SBI is engaging with, he said.
“So for different levels of maturity of MSMEs, the comfort level with the bank also differs. If at all they are part of the ecosystem for a large industry major, it becomes all the more easier for the banks to get the information structured vis-a-vis unstructured relating to the (financial) dealings (of the borrower).
“And those who are essentially in the nano category, may be say up to Rs 2 crore or so (turnover), there we actually tend to leverage upon various fintechs who are engaging with these MSMEs. So we would rather collaborate with such fintechs and do the co-origination model (of lending),” Khara said.
He further said that SBI is looking at this kind of a spectrum in financing the small businesses.
“So this is the kind of spectrum and this is how we actually intend to operate. It may not be out of place to mention that many of the MSMEs are still having lots of business done on cash.
“So I think that is posing a major challenge because it is not really giving enough insight into their (financial) behaviour and naturally it is not giving any insight into their turnover,” said the SBI chairman.
He said the country’s largest lender will be happy to deal with the intermediary players in the financing business and may be “we can help such intermediary players by buying out their portfolio also”.
The recently launched scheme where banks can also finance some kind of sweat equity is also another option, he added.
“So I think we have got the whole gamut of solutions which are available, but all said and done so as the equity is concerned I think that is something, the sweat equity, which is something wanted by the MSMEs to bring in. Of course in the recent past a new scheme has been introduced where we can also finance some kind of sweat equity also, but that is just the beginning,” Khara said.
He said banks need to have enough confidence into various models of the MSMEs and also the commitment level of such entrepreneurs.
Only then perhaps it will enhance the comfort for any bank and they will be in a position to support the sweat equity kind of requirements, said the SBI chairman.
Pointing out that the Micro, Small and Medium Enterprises (MSMEs) are constrained today in terms of cash flows, time gap in realising receivables, among others and also the level of lenders’ confidence in funding them, Khara said collaborating is a better model than lending directly to MSMEs.
“The fact of the matter is that today not many NBFCs have come in this space. And of late, when it comes to finding solutions, we feel that apart from lending directly to the MSMEs, there is a way forward in terms of collaborating with these NBFCs along with the biggest fintechs who have the ability to process the structured and unstructured (financial) data to have a better sense in terms of assessment of risk,” Khara said.
Based on that assessment, he said, bankers feel very comfortable in lending to the MSMEs.
He was speaking at a webinar on financing the unfinanced organised by the Global Alliance for Mass Entrepreneurship (GAME).
There could also be another option of financing based on the cash flow and not on the basis of balance sheet because very often it is observed that the balance sheet and the financial statement are not available in a form which is expected by any banker, he added.
Also, there is a broad spectrum of MSMEs in the country which work in a host of areas and often the kind of financial information coming from them is not very organised, Khara explained.
So to the extent where the data is fully organised, which is more like any other large corporate, it is the kind of spectrum which SBI is engaging with, he said.
“So for different levels of maturity of MSMEs, the comfort level with the bank also differs. If at all they are part of the ecosystem for a large industry major, it becomes all the more easier for the banks to get the information structured vis-a-vis unstructured relating to the (financial) dealings (of the borrower).
“And those who are essentially in the nano category, may be say up to Rs 2 crore or so (turnover), there we actually tend to leverage upon various fintechs who are engaging with these MSMEs. So we would rather collaborate with such fintechs and do the co-origination model (of lending),” Khara said.
He further said that SBI is looking at this kind of a spectrum in financing the small businesses.
“So this is the kind of spectrum and this is how we actually intend to operate. It may not be out of place to mention that many of the MSMEs are still having lots of business done on cash.
“So I think that is posing a major challenge because it is not really giving enough insight into their (financial) behaviour and naturally it is not giving any insight into their turnover,” said the SBI chairman.
He said the country’s largest lender will be happy to deal with the intermediary players in the financing business and may be “we can help such intermediary players by buying out their portfolio also”.
The recently launched scheme where banks can also finance some kind of sweat equity is also another option, he added.
“So I think we have got the whole gamut of solutions which are available, but all said and done so as the equity is concerned I think that is something, the sweat equity, which is something wanted by the MSMEs to bring in. Of course in the recent past a new scheme has been introduced where we can also finance some kind of sweat equity also, but that is just the beginning,” Khara said.
He said banks need to have enough confidence into various models of the MSMEs and also the commitment level of such entrepreneurs.
Only then perhaps it will enhance the comfort for any bank and they will be in a position to support the sweat equity kind of requirements, said the SBI chairman.
