Lending innovation in India is taking an interesting turn. While most headlines focus on flashy technology and customer acquisition numbers, some lenders are quietly redefining how credit reaches India’s MSME sector.
A Chennai-based NBFC recently crossed INR 350 crore in monthly disbursals. It didn’t build another app or venture into something unusual. Instead, it focused on partnering with QR-based payment platforms to offer Equated Daily Installment loans to merchants
who were already using the payment platforms to collect money from their customers.
Lenders have traditionally struggled to serve the MSMEs sector because the risk and cost of acquisition are quite high for the ticket size. This NBFC leveraged its existing payment relationships and transaction data to make lending viable. At the same time,
partnering with the QR platform enabled it to access new borrowers while still having a view and/or control of the funds since payments come through the QR platform itself.
The numbers from the sector have an interesting story to tell. Though MSMEs contribute 30% of India’s GDP, they face a credit gap of INR 20-25 trillion. While on the other hand, payment platforms are seeing their merchant base grow exponentially. Just in
FY24, offline merchant acquisition witnessed exponential growth with over 352 million QR deployments, marking a 34% increase.
The Chennai-based NBFC banked on this opportunity and integrated with various payment platforms. With access to rich transaction data that traditional bank statements often miss, their EDI product went live across major payment platforms in less than 6 weeks,
and the impact was quite immediate. Their customer acquisition costs dropped significantly as they were tapping into pre-verified merchant bases. The daily settlement mechanism through payment platforms helped maintain NPAs well below the industry average.
Introducing partnership-based lending
In India lending landscape, the innovation that will make the difference is not technical but strategic. Sustainable lending is not just about reaching customers but about embedding yourself in their everyday business flows. The partnership driven lending
model is proving particularly effective in India’s tier 2 and tier 3 cities where traditional bank branches struggle with MSME credit assessment. Payment platform data provides visibility into business patterns that would be hard to verify otherwise.
The partnership approach is also solving another critical challenge, i.e., collections. With repayments automatically managed through daily settlement on the payment platform, lenders can maintain healthy portfolio metrics even while scaling rapidly.
The most exciting part of partnership-driven lending is its replicability. We are seeing increasing interest from lenders across the spectrum, from large banks to small NBFCs, each bringing their own strengths to partnerships.
According to a recent
Business Standard article, UPI handled approximately 172 billion transactions, from 118 billion transactions in 2023. The payments
are growing rapidly year on year, creating richer digital footprints that can inform credit decisions. Lenders who can tap into this data through strategic partnerships are likely to have a significant advantage in the coming years.
The Chennai based NBFC’s success suggests that sometimes, the most effective innovation is not about building a new technology, but about finding smarter ways to use existing ecosystems. As Inda pushes for greatest financial inclusions, such partnership
models could be the key to making credit accessible to millions of MSMEs that form the backbone of our economy.
