The AI-powered and cloud-based tools will cater to India’s nearly 43 million SMEs.

India’s SME sector has been rocked on its heels by the COVID-19 pandemic. It contributes to 45% of the country’s manufacturing output and over 28% of GDP while employing 111 million people. The pandemic can have catastrophic consequences for these businesses, which were already suffering from an economic slowdown before the virus. Realizing this, the Indian government announced in May a 3-trillion-rupee ($40 billion) initiative for SMEs. It included instant collateral-free loans, subordinated debt of 200 billion rupees ($2.5 billion) for stressed micro, small and medium enterprises (MSMEs), and a 500-billion-rupee ($6.5 billion) equity infusion. This may be a challenging environment for the introduction of high tech credit appraisal tools. But this is exactly what the UK fintech Wiserfunding is proposing to do.

India both a challenge and an opportunity

The paucity of efficient models in the country counteracts the challenges. Tools currently available are not SME-centric, are mostly manual or low-tech, and have a poor forecasting accuracy.

Therefore, Wiserfunding will invest $3 – $5 million over the next three years to develop India-specific credit risk models with an accuracy of more than 80%. (Finextra)

The system will interconnect with the various credit databases, both public and private. This will ensure that models are fully automatic and up-to-date and able to generate the proposed SME Z-score.

Wisefunding will use AI, financial history, and other data such as corporate governance, management experience, and the macroeconomic situation to generate an accurate and unbiased credit risk score for the SME.

In an initial phase, by the end of the current financial in March 2021, Wiserfunding plans to tie up with a few banks and NBFCs to cover about 8.5 million Indian SMEs under its credit appraisal system.

“Typical to any economic shock, bank lending is expected to reduce for SMEs, making it more difficult for them to survive,” said Dr. Edward Altman, creator of the famous Altman Z-score methodology for assessing the financial health of companies and co-founder, Wiserfunding. “It will be important to have a reliable and accurate assessment of businesses’ viability and technology will be central to such analysis.”

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