Shabnam Nida Wazed
The shift towards digital lending is crucial for banks to meet the fast credit demands of Cottage, Micro, Small and Medium Enterprises (CMSMEs). Automation, enhanced data analytics, and streamlined processes are key to revolutionizing credit offerings and maintaining relevance in the evolving financial era.
Bangladesh, still a member of the least developed countries’ group, is on its way to graduate to a developing nation and there are many challenges that it is to face in different micro and macro economics. The country along with its developments in large industrial manufacturing sectors needs to focus on its service sectors as well as in agriculture and in agro-based CMSMEs. Financing to these huge economic sectors and sub sectors is becoming a crucial need in particular in the evolving digital technologies where financial inclusion in individual levels as well as in trade and business is in an accelerating trend and Bangladesh is no exception to this in fostering digital financing.
CMSMEs is the largest sub sector of the economy in the country, accounting for 25 per cent of GDP and creating employment for 7.8 million people directly. Despite much support from the government and private sectors, the CMSMEs sector, especially in rural settings, faces several challenges in starting and growing their business. Limited access to finance has been one of the core impediments to the sectors’ growth.
It is important to focus on this to enhance economic growth as it is creating employment opportunities at all levels and empowering people’s financial independence.
Financing to CMSMEs through digital transformation facilitates conglomerates and vendors to be smart in borrowing and depositing money with easy process and it will shift them into transformed ways in manufacturing, handling, storing and transporting things by expanding internet access and growing use of smartphones.
SMEs seek seamless and immediate fund availability. To achieve this, banks require flexible, open, and easy-to-integrate solutions and advanced technologies like artificial intelligence driven (AI) systems.
While traditional banks are still preferred by many SMEs, a trend started during a prolonged pandemic that is likely to end now. It shifted expectations towards digital-led, simpler, and faster lending.
At that time FinTechs and other challengers capitalized on this by providing swift credit scoring and expanding services beyond lending.
In collaboration with tech firms banks became competitive to do business during the pandemic and they regained their strengths with potential partnerships with Fintechs’ white-label solutions.
In comparison with offline business the online business is more profitable and it increases revenue, provides access to a higher customer base, increases operational efficiency and enhances customer experience.
Offline business limits an enterprise from market reach. Customizing technology and having an online presence leads to remarkable opportunities for CMSMEs to grow and up their game in local and overseas markets and increased digital engagements allow the cottage, micro and small businesses to explore new markets, enabling them to compete with the top giants in the industry. E-Commerce platforms expand geographical boundaries by engaging in enhanced customer experience and provide support for better supply chain solutions. This allows companies to sell 24/7 and increase their customer base rapidly with limited operational costs.
A local leading private commercial bank introduced an innovative financial product called Tally Loan – ‘Druti’ to promote greater financial inclusion in Bangladesh. In no doubt it is a good initiative which is designed specifically for small traders, often overlooked by formal financial institutions. With over eight million businesses lacking access to formal credit and secure banking services.
This innovation helps customers obtain necessary documents, such as trade licenses for loan applications. Male entrepreneurs with at least two years of experience and women with one year of experience are eligible for loans up to Tk1.5 million, without requiring any mortgage, which can be repaid within two years.
Under the system loan sanctioning process is straightforward – loans are disbursed within 72 hours after assessing only Tally Khata records. Grassroots business entities are greatly benefited through this digital transformation.
Agro based industries and farmers in agriculture could be greatly benefitted from the digital financing. Under devised digital methods for the farmers and micro and small agro-based businesses and vendors can come in direct contact with the experts in this field who are in constant touch with the recent updates or advancements. By doing so, they can assure optimum return on investment with the use of effective digital transformation techniques. The SMEs could also be given the freedom to make the necessary changes in their ongoing online marketing campaigns as the need would arise.
Challenges:
Though there is an optimistic trend of digital financing and transformation, several challenges are there that should be solved. Lack of identity and necessary business documents, complexity in application and disbursement process, high operational cost of the financial institutions for processing small amounts of loans, little or no data exist for credit assessment and lack of digital footprints of CMSMEs are among them. As solutions to overcome challenges it is a need to increase the accessibility of CMSMEs in the formal financial system, reduce operational cost of financing using digital solutions and increase the financing amount at lower rates to facilitate the growth of their businesses and there could also be a consortium/organization for group financing.
We need to study a lot on such methods of financing and there should be coordinated and collective efforts among bankers, IT professionals, FinTech experts to reduce operational cost and bring the CMSMEs under digital financing.
The writer is founder and chief executive officer of Agam International Limited-an AI algorithm based Fintech company. She can be reached at shabnam@agam.ai.
