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How Technology can help both MSMEs and Lenders Tackle the COVID-19 Crisis

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Sandeep Anandampillai, Co-Founder & CPO, CrediwatchSandeep has over 14 years of global experience in software development, management and business on big-data projects for fortune companies

As the COVID-19 outbreak continues to spread like wildfire in India, its impact on the economy could be catastrophic. The pandemic has already rendered many industries non-operational, whereas the rest are struggling to avoid a complete shut-down. But while the crisis has created an unprecedented challenge for businesses of sizes, startups and MSMEs have been hit the hardest. With the public markets plummeting to new lows, up-and-coming companies are facing a severe cash crunch. MSMEs, in particular, are caught completely off-guard as securing loans through traditional channels has become nearly impossible. Although the Central Bank has provided relief measures to mitigate this, the ground reality might be very different. Both lenders and businesses are concerned about the actual implementation of these measures. Some players in the MSME sector also believe that there is a requirement to announce new ones, based on the feedback of individual sectors post the lockdown. The only other option is to rely on informal lenders, who are taking advantage of the situation to charge exorbitant rates.

Against this backdrop, the general consensus among experts is that there is an urgent need of deploying technology in the formal banking sector. There are companies providing tech-based underwriting solutions to financial institutions, but the majority of them had not anticipated a widespread crisis like this. Therefore, their offerings are not built keeping in mind factors such as remote working environments, increased cyber security threats and social distancing measures. This presents a significant opportunity for solution providers to bring forth intelligent insight-driven platforms that can enable lenders to assess borrowers and weed out bad cases early on.

Speeding up the Loan Approval Process with Modern Tech
As merchants and MSMEs will be completely


squeezed for funds in the coming months, it is crucial that lenders evaluate the loan application at a much faster pace to increase loan disbursement. Typically, the credit evaluation process for a secured loan at a public sector bank in India takes about 4-6 weeks. This can only come down with the use of technologies such as AI (artificial intelligence) and ML (machine learning), which bring insights into the credit underwriting process.

An AI-driven credit underwriting model not only facilitates a faster credit evaluation, but also offers an accurate, bias-free credit score. It combines traditional data with alternative data (non-credit information about the borrower including rental payments, utility payments, educational background and employment history etc.) to calculate accurate credit scores in close to real-time. These advanced mechanisms, if implemented strategically, can then significantly reduce the overall loan-processing time for banks, NFBCs and small lenders.

Credit-risk analysis is another area where the deployment of machine learning will allow lenders to assess the true creditworthiness of borrowers. This technology has the ability to identify complex, nonlinear patterns within large volumes of data, which helps differentiate legitimate borrowers from fraudsters. The main advantage that machine learning offers is that it can learn continually. The more data an ML-based system is fed, the more accurate its credit risk predictions will be.

As merchants and MSMEs will be completely squeezed for funds in the coming months, it is crucial that lenders evaluate the loan application at a much faster pace to increase loan disbursement



Enabling Lenders to continue Operations Remotely

On the other hand, new players in the banking space can see the lack of feet-of-the-street staff as a hindrance to receiving fresh funds. This is where online KYC and virtual onboarding solutions come into the scene. Using such technology, financial institutes can interact with their customers remotely without the requirement of physical visits. Moreover, they can keep track of the working capital situation of small businesses on a regular basis through online alert tools. Finally, in the present scenario where social distancing measures are to be followed strictly, traditional banks should invest more in establishing an omni-channel, digitally-enabled debt collection mechanisms. Naturally, large-scale implementation of technology tools will pave the way for a complete digital overhaul of the banking industry in India.

While the coronavirus outbreak brings forth innumerable challenges, this is a good opportunity for organizations to re-assess their capabilities of handling grim situations such as a pandemic in the distant future. Technology will play a pivotal role in combating this crisis too, and businesses, MSMEs and lenders who equip themselves with tech-based tools will be able to address 'black elephant' events (and not just 'black swan' events). As such, they will emerge more scalable, future-proof and more importantly, truly technology-enabled.