Deskera’s industry-changing move: Bank loan for SMEs

78% SMEs get loans from non-regulated sources or are self-financed

by | Jun 7, 2016 | SME

Deskera’s business software will now allow SMEs to get loans approved quickly and without hassle from banks by helping financial institutions tap into the real-time financial data of businesses. With the help of Deskera, any enterprise can quickly apply for a loan if Deskera’s Enterprise Resource Planning (ERP) software is integrated with the bank’s system. The software will also solve critical issues such as NPAs or bad loans and paucity of funds for SMEs.

Tackling the NPA problem

In the worst ever financial crisis since 1991, bad loans in India grew to Rs 3,41,641 crore in September 2015. This happened primarily because banks didn’t have visibility into the finances of an enterprise. Although banks need a host of different documents to validate a loan claim, they still don’t have access to real-time transactions of the enterprise, their finances, and the feasibility of their projections. The data that they have is not enough to validate the loan claims, rendering them ill equipped to take informed decisions.

On the other hand, Deskera’s Cloud-based ERP keeps track of the key financial transactions of an enterprise: invoices, inventory, account receivables, balance sheet, etc. It keeps a record of business resources—cash, raw material, production capacity—and the status of business commitments: orders, purchase orders, and payroll. If this data is made available to the banks, they will be in a better position to take informed decisions. On the basis of the data, they can predict when and how an enterprise will start losing traction, weeding out wilful defaulters. Banks can monitor the finances of an enterprise in real time if they are red-flagged. Deskera’s Big Data Analytics could enable them to accurately predict when an enterprise would turn into an NPA.

Financial institutions can use Deskera’s digital platform for authenticating the loan application of an enterprise. For instance, Sunrise Chemicals is expecting a payment next week but urgently needs money to pay its suppliers and tide over. But since it is a bank holiday and due to the tedious bank authentication process, it would be a few days before the funds are released. The enterprise would apply for a loan through Deskera ERP and expect a timely approval from the bank.

Information available on Deskera ERP will help the bank evaluate if the company has been meeting its financial obligations on time. Evidence of monetary discipline would encourage banks to offer loan at lower interest rates to SMEs.

“Due to the comprehensive nature of data in the ERP, a more detailed picture of the customer financial health would be visible to the banks. The access to this information can be authorized by the SME in a controlled environment. Consequently, any loan approval mechanism would get expedited”, said Shashank Dixit, CEO, Deskera.

Another instance of managing cash flow: An enterprise needs to process its payroll as it is end of month, but it is unable to do so as payments from clients are due next week. The SME could apply for short-term credit directly through the Payroll Module in Deskera, which would enable seamless processing in conjunction with credit approval from the bank, given the payroll is automated due to Deskera’s integration with the online banking facility.

“This is a refreshing idea. Banks can integrate with the existing enterprise software and access the financials of an enterprise. It will rid us of the tedious process of verifying the claims of individual enterprises time and again. It will be a big relief for us,” said a senior bank official of a leading Indian Bank.

Big corporates are the biggest contributors to the NPA crisis

Data shows that big corporates are the major defaulters, while small businesses have a much lower contribution. A study done by the International Finance Corporation, in partnership with the Japanese government, said that SMEs in India require Rs 32.5 trillion in financing. Of this, as much as 78 per cent comes from non-regulated sources or is self-financed while only the remaining 22% is provided by banks and other financial institutions. This is because of the time-consuming process for SMEs to apply and avail loans from banks in India. One of the main factors for non-approval of loans is the lack of documents and collaterals.

“Getting credit for our operations is a big hurdle. Banks are reluctant to provide credit to us due to the track record of some other enterprises, which do become insolvent over a period of time. Availing loans through a software is a good step and will facilitate the process for us”, said Angad Gupta, an entrepreneur from Lucknow running a Logistics firm.

Big corporates corner the lion’s share of bad loans despite the fact that SMEs have a better loan repayment history. Therefore, funding SMEs is safer for a bank than doling out sops for the big corporates. But the practice is quite the opposite. While conglomerates are bailed out by their management teams, SMEs do not have the resources to do so.

Deskera credit ratings—a shot in the arm for SMEs

Due to its unique proximity and visibility into an enterprise’s functioning, Deskera would issue credit ratings on the basis of a comprehensive assessment of a company’s financials, including the inventory, receivables, tax compliance, and payroll, among other things. The rating scale would be aligned with the ones generally used by banks, helping them better assess the creditworthiness of SMEs that want to apply for fresh loans or those seeking increments in their existing credit limits.

“I just wish this technology had been developed 10 years back, when my business suffered heavily due to lack of funds”, rues Mohan Singh, an entrepreneur from Meerut.

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