Bridging the SME Financing Gap: Critical Role of FinTechs


Imagine this: you have an idea for a small business, have a robust business model in place, your partners have agreed to support you in principle, and all that remains now is for your loan to come through. Then you get a call from the bank and hear those heartbreaking words – “Application denied.”

The story is a common one – banks tend to reject three out of every four loan applications that they receive from small businesses, highlighting a clear apprehension towards financing small-and-medium-scale enterprises (SMEs).

Banks have traditionally been a custodian of customer relationships in the SME lending space, but after the global financial crisis, there has been a significant reduction in their risk appetite. This reduction, in turn, led to banks being increasingly cautious (and often conservative) when it comes to SME lending, especially newer businesses which lack a strong credit history. With increased regulatory scrutiny, banks have further tightened their lending standards and reinforced their requirement of more internal approvals. In spite of an almost decade-long endeavor to convince banks of the importance (risk notwithstanding) of SME financing, they seem to be generally inclined more towards larger corporate loans. This inclination is evident when one...



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