ProFinTech’s Recommendation Engine is powering Financial Inclusion of MSMEs and Digital Trade Lending

(The image from Freepik is blended with key data points)

India has more than 6.3 crore MSMEs who are the backbone of Indian economy. They are a combined force of small businesses, mid-sized manufacturers and export businesses who contribute to 30% of India’s GDP and over 45% of the exports. Despite their significant contribution to Indian economy and local employment, MSMEs, especially, Micro and Small businesses still face difficulty in getting finance quickly. 

Why are small business enterprises still “the under-served base” with respect to financing?  The big reasons are : 

1. Time consuming Traditional financing process – which demands collateral and relies on ‘credit history of business enterprises’

2. Traditional assessment & scoring mechanisms –  these don’t capture interconnected financial behaviours and dynamic nature of business enterprises, adequately

3. Inertia and fear of the unknown – many small businesses still hesitate to consider FinTechs for their loan requirements.

FinTech companies like ProFinTech are addressing the first two big issues (1 & 2) via evaluating the creditworthiness of MSMEs through innovative credit scoring algorithms that leverage various alternative data sources. These models can overcome the constraints of conventional rating approaches that just rely on credit history and CIBIL scores. The third issue falls within the realm of ‘behavioral change’ – through showcasing their customer success stories and data privacy policies & Tech stack, FinTechs could convince small businesses and encourage them to use their services.

We at ProFinTech are continuously innovating our tech-stack in order to provide quicker and more accessible financing options for MSMEs.  Our Recommendation Engine (awaiting a Global patent) leverages advanced analytics, alternative data, and machine learning, to provide a more nuanced and comprehensive assessment of an MSME’s financing need, his/her risk profile and capability to repay the loan.

ProFinTech’s Recommendation Engine – How is it driving financial inclusion for small businesses 

  1. RE’s wider and deeper evaluation of MSME business (Vs) Restricted business  coverage by Traditional scoring mechanisms

As you can see, our Recommendation Engine integrates a wide array of data points, factors in the business owner’s financial & compliance behaviours and employs sophisticated AI & ML models to arrive at a comprehensive view of every small business and its potential. Because of such meticulous analysis, RE can actually bring many more deserving small businesses into the fold of timely financing.

Traditional scoring mechanisms (Pt 2 above in the first box) depend on limited financial parameters and cannot generate such nuanced profiles of businesses.  As a result, many small businesses operating with limited formal credit histories and inadequate documentation would not be qualified to get financing. But things are changing for good, thanks to Digital Lending models.

  1. RE brings ‘contextual dynamism’ to the trade financing process 

Transaction-based financing with solutions like invoice financing, supply chain finance, trade credit etc, is picking up momentum. This can address small-ticket and day-to-day business financing needs of MSMEs, especially, small enterprises who often need a timely boost of small financing for their daily business activities and operations. While Invoice financing allows MSMEs to receive cash advances on outstanding invoices, Trade credit has suppliers extending credit to MSMEs for purchasing goods or services.

Small business enterprises & their financing needs (Vs)  Cautious & risk averse Banks/Financial institutions 

How are we negotiating this?  

Our Recommendation Engine employs algorithms to comprehensively map out the ongoing business transactions and financial activity of every business enterprise. By integrating a multifaceted array of data points – including non-traditional and behavioral analytics, RE extends a granular analysis of the business owner’s  behaviours, creditworthiness, risk profile and potential, to our finance partners. This rigorous process, naturally, helps our finance partners build confidence about the small business enterprise in consideration. Leveraging real-time data, RE also can also capture the dynamic nature of the business through up-to-date assessments. 

The diagram below captures RE’s rigorous evaluation of every business’s request for financing (across many levels), before it gives its final recommendation to our finance partners:

Should you want a full-fledged demonstration of ProFinTech’s Recommendation Engine, do write to us Talk to us!

Credits : This blog is a quick summary of  big points in a detailed White Paper on Recommendation Engine.

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