The Micro, small and medium enterprises (MSME) in India has had a tough few years. Rising inflation, soaring commodity costs, restricted access to formal banking capital, finance and credit, and the pandemic have left the sector reeling. According to government data, 5,079 businesses closed in fiscal years 2020-21 and 2021-22.

Such developments are discouraging considering the positive impact that MSMEs have on job creation and industrialization in rural and underdeveloped areas of the country. India’s MSME sector is estimated to contribute about 50% to the country’s GDP by 2025. It is also the second largest job generator in India, as of FY22, with over 111 million of people employed.

Siddharth MehtaCEO, Free loadsat down with Priya ShetSenior Anchor, YourStory Media to discuss MSMEs, loan eligibility for these businesses, and a new loan product called Merchant Cash Advance.

Reduce the merchant’s financial burden

Most MSME transactions are cash-based (given the low scale of operations, working style and limited financial management). Due to limited access to financial support through traditional means, small businesses often struggle to cover their employees’ salaries, bills, taxes, and EMIs in a timely manner. Also, as Siddharth pointed out, business owners don’t have time to go to a bank or fill out paperwork because they lack the time to run a business. Also, the problem with the banks was that they were not able to reach this segment and understand how to guarantee these customers due to the lack of information in place.

Keeping this in mind, Freecharge has launched a new product – Merchant Cash Advance (MCA) in association with Axis Bank. MCA comes with a free Axis Bank current account where the merchant or customer can contact the branch for any assistance or questions regarding the loan.

This product aims to broaden the scope of loan eligibility for micro, small and medium-sized (MSME) traders and reduce the burden of heavy monthly repayments. MCA is designed to provide these traders with the necessary working capital as well as easy repayment options. Businesses can digitally apply for loans ranging from Rs 5,000 to Rs 5 lakh depending on their transaction history on the Freecharge platform and their CIBIL score.

MCA also offers MSME business owners a feature known as Easy daily payment (EDI) whereby installments are deducted in small amounts from their daily QR settlements, eliminating the burden of paying a heavy installment at the end of the month. This digital product requires no documentation except for Aadhaar and PAN details and allows businesses to choose their loan term.

“The idea is that you use this loan to scale your business capabilities, expand inventory in your stores and grow your business,” Siddharth said.

Target micro to small businesses

According to Siddharth, a large part of MSME lending goes to medium and large enterprises. This leaves micro and small businesses on the sidelines. The MCA product aims to pave the way for small businesses with instant digital loans. Small businesses can apply with very little paperwork and the loan is disbursed in 10 minutes. Additionally, Freecharge has worked on the right pricing of the loans, offering some of the lowest interest rates in the segment. Finally, merchants can use the free bank account for all their business activities except lending. The EDI functionality will also serve microentrepreneurs well, allowing them to repay their loans as they come along without disrupting their working capital or cash flow.

Build trust in the lending space

The road to recovery will be paved by the digitization of financial products and services. Already, these products facilitate remote transaction management, seamless delivery of products, and easier access to services. It will also help create better customer experiences and a smoother customer journey. MCA offers clean processes, on-time loan disbursements and daily collection of loan amounts. All of this will go a long way in building trust with MSME traders. Moreover, with Axis Bank, traders also have an extensive network of bank branches where they can go to clear their doubts.

Over the past five years, Freecharge has been working to strengthen their financial capabilities and services, such as BNPL (Buy Now Pay Later) loans for their customers, or an FD express on the Freecharge platform. Currently, the company has plans to add more product variants to the MCA and refine the user experience based on the traction it sees in the future.

You can watch the full interview,