In the context of MSMEs, sachetisation of MSME loans allows these enterprises to access credit in smaller amounts that are tailored to their specific needs and repayment capabilities.
MSME loans: The democratisation of finance in India has seen rapid growth, thanks to the digital public infrastructure provided by the government of India and supported by ecosystem players like India Stack, NPCI, etc. This has particularly benefited the Micro, Small, and Medium Enterprises (MSMEs) segment, which has experienced significant growth due to these developments. The concept of ‘Sachetisation’, where financial products and services are made available in smaller, more manageable packets, has been transformative for this sector. Digital platforms like Open Credit Enablement Network (OCEN), open networks, GST Sahay, and GeM Sahay have made sachetisation of MSME loans possible, ushering in a new era of financial inclusivity and efficiency.
The concept of sachetisation is akin to that of the FMCG sector, where high-priced commodities are made available to low-income consumers in small and affordable sachets. Similarly, financing sachets are designed to be manageable and accessible for borrowers with limited financial means. It is a way to combine convenience and accessibility without affecting the bottom line, echoing the concept framed by CK Prahlad.
While banking systems globally tend to focus on large corporations and established businesses, MSMEs still face challenges in accessing credit on time and at affordable rates due to the conventional mechanisms of banks, which were not designed to handle small loans.
In the context of MSMEs, sachetisation of MSME loans allows these enterprises to access credit in smaller amounts that are tailored to their specific needs and repayment capabilities. For instance, Sachetisation can help small businesses with collateral-free solutions like Factoring, supply chain finance, embedded finance, etc., to tackle their working capital needs.
Why Now?
India has over 63 million MSMEs, out of which only 13.8 million were formally registered but contribute to almost 33 per cent of the GDP. The integration of informal businesses into formal banking through initiatives like Jan Dhan, Aadhaar, UPI, and mobile-connected bank accounts has played a significant role in the transformation. Additionally, connected technologies like Aadhaar, UPI, and Account Aggregator/OCEN have reduced the cost to serve and increased the depth of lending to non-lendable segments.
Role of Digital Public Infrastructure
Digital public infrastructure in India serves as the foundational platform enabling digital connectivity and data sharing between multiple stakeholders, including consumers, financial institutions, businesses, and government bodies. Platforms like Aadhaar, UPI, GSTN, NPCI, and GeM have offered universal, interoperable solutions that reduce transaction costs, increase transparency, and speed up service delivery. The availability and effectiveness of digital public infrastructure significantly contribute to the success of MSME loan sachetisation in India.
OCEN and Sachetisation of MSME Loans
The OCEN framework, consisting of an open network of APIs for borrowers, lenders, and intermediaries, plays a vital role in sachetisation. By providing a standardised and digital interface and integrating lenders and marketplaces, OCEN enables granular analysis of each loan application. This analysis helps lenders offer highly customized loan products in smaller denominations, customised tenures, effectively implementing the concept of Sachetisation.
GeM Sahay – First Successful Proof of Concept
GeM Sahay is the first product supporting loan sachetisation in India. It provides working capital loans to vendors registered on the Government e-Marketplace (GeM) platform. Since its launch in 2021, lenders have efficiently served borrowers in remote areas such as Tripura, Andaman Nicobar, and Kashmir, while operating from locations like Jaipur or Mumbai. The smallest ticket sizes for loans have been as low as Rs. 160, with an average loan amount of less than Rs. 25,000. The entire process is digital and tech-driven, making the cost to source, deliver, and recover negligible.
GST Sahay, a part of Digital Public Infrastructure leverages the GST data of businesses to assess their creditworthiness and extends loans accordingly. Both these platforms leverage the existing data of MSMEs, allowing for the assessment of credit needs and repayment capacity accurately. They hence facilitate the Sachetisation of MSME loans by enabling lenders to offer right-sized loan products. More such use cases, including the farmer, milk farmer, vegetable vendors etc are in the works.
Advantages of Sachetisation for Indian MSMEs
Bridging the Credit Gap: Sachetisation addresses the funding gap faced by MSMEs, especially those in rural and remote areas, by offering smaller loan sizes that are easier to obtain and repay.
Fostering Financial Inclusion: By providing smaller, tailored loan amounts, Sachetisation encourages MSMEs with limited or no credit history to participate in the formal credit system.
Encouraging Entrepreneurship: Sachetised loans are particularly beneficial for aspiring entrepreneurs and startups, allowing them to access the necessary funds in the early stages of their ventures.
Alleviating Risk for Lenders: For traditional lenders, Sachetisation mitigates the risk associated with larger loan amounts by diversifying lending across multiple smaller borrowers.
Regulation
Government initiatives for MSMEs, along with pragmatic approaches by the Reserve Bank of India through policies and regulatory initiatives like Digital Lending Guidelines (DLG), FLDG (First loss default guarantee) guidelines, and Factoring guidelines, have been instrumental in addressing the sector’s needs. Factoring itself is a financing product based on invoices and technology has brought it to the lowest layer of business i.e. MSMEs.
Conclusion
Sachetisation of MSME loans in India is an innovative approach that offers new growth opportunities for these businesses. Digital platforms like OCEN, GST Sahay, and GeM Sahay have played crucial roles in implementing this strategy. As these platforms and digital public infrastructures continue to evolve, the involvement of fintechs and support from the Reserve Bank of India will further democratize finance, boost financial inclusion, and empower MSMEs in India.
