RBI Deputy Governor Calls For Increased Digitisation In Credit Delivery To Support MSMEs

Speaking at the Annual Day of the Foreign Exchange Dealers on Thursday, Swaminathan J, Deputy Governor of the Reserve Bank of India (RBI), said that the financial sector should leverage digitisation in credit delivery to help Micro, Small, and Medium Enterprises (MSMEs).

The Deputy Governor highlighted the adoption of digital payment systems by MSMEs as an opportunity, adding that bankers should explore these opportunities. Underscoring the significance of the financial sector in enhancing the export of MSMEs, the Deputy Governor called for tailored and focused services for MSMEs.

He stated that the financial sector can significantly aid MSMEs by offering services such as pre-and post-shipment finance, factoring, and invoice discounting.

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“The financial sector can play a crucial role in boosting MSME exports by offering targeted support and tailored services that address the unique challenges these businesses face in the global market,” he said.

“We have seen significant traction towards end-to-end digitalisation of credit delivery in the past few years, largely in Retail and to some extent in the MSME sector. I would urge bankers to explore these opportunities further for greater digitalisation of their transactions with MSMEs,” the RBI Deputy Governor added.

He further stated that financial institutions can expedite approval times and significantly lower the costs of availing credit by using digital tools for application processing, verification, and disbursement. Pointing out the data footprint generated from these transactions, he said that a better risk assessment system can be developed.

“Extending finance after a proper understanding of the cash flows of MSMEs, including factoring in the possible delayed payments from their buyers, will ensure a proper reading of the actual working capital cycle and ensure adequate financing,” he said.

“Many small business owners lack the knowledge and skills to effectively manage their finances, which can hinder their growth. The sector can significantly aid MSMEs in managing risks through export credit insurance and currency risk hedging solutions,” the Deputy Governor said.

“While financial discipline is crucial, the unique challenges faced by MSMEs—such as low capital base, lack of scale, cash flow constraints from delayed payments, fluctuating market conditions, and external economic pressures—necessitate a more nuanced approach to assessment as well as follow-up,” he added, pointing out the need to adopt a more sensitive and sympathetic approach towards MSMEs.

Going further, the Deputy Governor emphasised the need to spread awareness and enhance financial literacy among MSMEs.

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