Micro, small, and medium enterprises (MSMEs) play a major role in the economy and create many job opportunities; however, despite government initiatives to support them, they can face major barriers to accessing finance, which can hold them back.
Why is there a problem?
To easily access finance, a business traditionally needs bank statements and other financial documents to enable the lender to assess the risk and the business’s creditworthiness. Many MSMEs do not have sufficient evidence, particularly in the early years of operation, which can mean they are unable to access adequate finance.
Alternative data
Alternative data is a set of unstructured and structured data points that lenders can use to assess the business. This data can include online behavioural data, digital footprints, digital payment information, business performance data, and telecom information.
Analysing the data
Analysing data to see whether a lender is likely to consider you credit-worthy can be complicated. In many MSMEs, there will be no in-house data analytics; therefore, using existing staff to carry it out means taking them away from other vital tasks. A solution is to use a data collection company such as https://shepper.
Lenders are likely to use AI-powered software when assessing your data, which is something that is revolutionising the way lending decisions are reached.
Are there disadvantages?
Using alternative data is not without challenges. Alternative data will come from various sources, making it harder to link with an individual or MSME. This means using unique identifiers to ensure the data is accurately matched to the right person or business.
There are also concerns about transparency, potential bias, and privacy. Lenders need to be sure that alternative data systems are fair and do not produce arbitrary or biased results.
These challenges can be overcome, however, and are offset by the way alternative data can make the world of finance more inclusive and more suited to the unique needs of MSMEs. With MSMEs continuing to play such a vital role in the economy, it is essential that the credit system is up to the challenge.