As we enter into a start-up-focused society, aided by technology and finance, there is a commonly-used term, Fintech, which has added a new dimension to the financial sector. Fintech has opened a new window of opportunities for small entrepreneurs, when banks are reluctant to extend credit to the small and medium enterprises (SMEs). Alternative lenders have started emerging over the years to help fund businesses that don't qualify for lending from the banks. Banks' lending to small businesses has also declined and in this background the alternative lending industry is booming.
It is typically acknowledged that banks tend to provide personalised services for a few high-value customers or automate services for a mass consumer market.
Once there was a time when you would drive to your local bank looking to raise finance for a start-up business or apply for short-term financing for your existing cash flow shortfalls. But in today's ever-changing world of finance and the sources of funding available through technology channels, small business owners are looking elsewhere to borrow. Fintech can play a great role to close the financing gap faced by SMEs in our country.
SMEs' financing challenges are related to both demand and supply-side issues. The founder can include cumbersome financial documentation and collateral requirements, slow applications and high-interest rate.
On the supply side the lack of credit history or more general information, low revenue per client and high levels of SMEs' informality impede lending to SMEs. Moreover, availability and usages of digital financial services still are low among the masses. Product and services are inadequate for SMEs and the people. Digitization for mostly (OCT) P2P fund transfer, lack of innovation in pro-poor digital services, and digital financial literacy are low among our rural people.
The fast-growing digital footprint of SMEs creates dates whenever they make or receive digital payments, buy or sell electronically, use cloud-based services, or get rated. Online services can help overcome information constraints.
Fintech lenders including large e-commerce and payment firms can access the transaction history of their users and put them in a position to assess credit risks. So, the field is huge to play an active role but our service providers should carefully concentrate on the following aspects to play an effectual role in this sector such as; service charges need to be minimal, the security of mobile payment should be developed, coordination among all the stakeholders of this industry should be increased, near-field communication (NFC) technology should be used for development of mobile payment and, people should realise the benefits of digital financial services.
Not only the service providers but different industries like network service providers, mobile operators and government agencies should come forward to improve the digital financial system as well as the fintech industry.
The government should take the citizen-centric approach to build an inclusive digital financial ecosystem by catalysing a low cost, interoperable digital payment system that solves last-mile delivery changes.
Google pay allows users to transfer funds around the world for a small foreign exchange rate markup and processing fee. We don't have this kind of service yet in our country. Interoperability is a major challenge in DFS. Still our government should take immediate steps in these regards. At the same time, we need to gain the ability to adapt to upcoming changes in this industry.
The United Nation Capital Development Fund (UNCDF) in its Financing for Sustainable Development Report-2019 has stated how the new technologies will have a massive impact on financial services and providers in the near future.
New financial products can earn many traditional financial risks such as credit risk, liquidity risk, and asset liabilities mismatch. Quick scaling up of new technology can lead to consumer fraud as well as the risk of excessive leverage in unregulated areas of the economy. It's high time to think about balancing access to consumer protection, integrity, and stability. Effective consumer protection and financial system stability would result in a greater financial inclusion and a more stable financial system which would support investment in sustainable development. As new financial products and factors are going to enter into the existing financial system, policy and regulatory responses have to adapt to these new circumstances and carefully manage the risk of fintech.
By understanding the reality of the market and the needs of SMEs and coming up with new products by adopting changes and making people capable to use digital financial services in their daily life, fintech can play an effective role in promoting our small and medium enterprises (SMEs), empowering individuals to take financial decisions as well as harnessing fintech itself as an industry in the coming days.
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