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For instance, cash-flow lending, at the very minimum, needs visibility to past and future cash-flows
Credit and Finance for MSMEs: Discussions around enhancing cash-flow-based MSME lending have been doing the rounds in the lending ecosystem for the past at least four-five years. The model can shrink the time and hassle around raising instant credit for borrowers even as its share in the overall lending space continues to be minuscule, according to experts speaking on Day 1 of Financial Express Online’s SME Artha event.
“MSMEs need timely working capital. Typical processes take months for credit assessment because all of that is based on balance sheet-based lending. The majority or 70 per cent of the MSMEs would never qualify for balance sheet lending. However, they work with some of the largest corporates in the country, have a significant track record of performance, and have healthy cash flows. I don’t think why this data cannot be leveraged to provide them with innovative working capital products. This would provide MSMEs with instant access to working capital, within 24 hours. That’s the problem we are trying to solve at CredAble,” said Nirav Choksi, Co-founder and CEO, CredAble.
The Reserve Bank of India (RBI) had also urged lenders towards adopting cash-flow-based lending instead of balance sheet-based. In December last year, Governor Shaktikanta Das at a webinar had said that “to improve the credit to gross domestic product ratio, access to credit and cost of credit need to be addressed by lesser reliance on collateral security and greater cash-flow based lending.” In 2019 as well, the UK Sinha committee report on MSMEs had said that the introduction of cash-flow lending is essential to ease the credit gap faced by MSMEs.
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