Data as Collateral : The big game-changer for MSME Financing

In the world of financing, collateral has traditionally been limited to physical assets like real estate, inventory, or equipment. These physical forms of security have long served as the foundation for lending decisions. However, in today’s rapidly evolving digital age, a new & powerful collateral is emerging: DATA. Both commercial and individual data are becoming the most valuable and realistic forms of collateral for businesses, especially, MSMEs. At ProFinTech, we are pioneering the use of data as collateral for financing MSMEs.

By leveraging alternative data sources, advanced analytics, and cutting-edge machine learning techniques, ProFinTech is disrupting how MSMEs are assessed for financing – right down to every business transaction. Our robust data + tech stack is enabling us to offer Banks/NBFCs a much more detailed and accurate evaluation of each MSME’s financing needs, risk profile, and repayment capacity. More importantly, it is helping us address the limitations of traditional assessment, which often relies heavily on credit history. By factoring in a broader spectrum of data like – the business owner’s financial & compliance behaviors, ongoing trade transactions, profile of clients and trade partners, etc., we – 

This is how by analyzing a wide array of data instead of traditional physical assets, we are facilitating faster and more inclusive access to financing for small businesses across many industries. If you want to know more about our process for MSME loans, do see this page.

Let’s see how ProFinTech is disrupting MSME financing – with Data as Collateral

Data as collateral represents a fundamental shift in how we assess creditworthiness and secure loans. Unlike traditional banking, where loans are primarily based on physical assets or lengthy credit histories, our approach leverages the rich, real-time data footprint of a company’s business operations to provide financing for every business transaction.

Consider this example of Ravi who owns a small manufacturing unit in Coimbatore. He needs ₹5 lakh to fulfil a large purchase order. Study the diagram below to see the difference between what happens when he approaches a bank and ProFinTech, for this loan.

As you can see, our Data-as-Collateral approach speeds up trade loan approval process and unlocks 2-3 document-free financing options for MSMEs.

Data as Collateral in action – Real world Use case 

Empowering Tier 2 and 3 City Entrepreneurs

Meet Suresh, the owner of ‘Suresh Grocery Mart’ in Raipur, Chhattisgarh. His case study demonstrates how data as collateral is transforming MSME financing in India’s heartland.

Background: – Suresh runs a mid-sized grocery store with an annual turnover of ₹1.5 crore. He needs frequent, small-ticket financing to pay suppliers and maintain optimal inventory levels. For Banks, his loan requests are too small and too frequent to process efficiently. 

Our Solution: We set up a seamless data pipeline integrating

The magic of Transaction-Based Lending: 

– Suresh receives a ₹3 lakh invoice from his main FMCG supplier for the upcoming festival season stock. 

– Our AI analyzes his integrated data in real-time: 

* GST data shows 20% year-on-year growth 

* ERP data indicates stockouts in high-demand items during previous festivals 

* PoS data predicts a 30% sales spike during the upcoming festival 

* E-way bills confirm regular, increasing orders from this supplier 

Positive Impact: 

– Suresh maintains optimal inventory, never missing a sale. 

– He negotiates better prices with suppliers due to prompt payments. 

– His business grows by 35% year-on-year, outpacing local competitors. 

– He expands to two more locations in the neighbouring towns.

By offering fast, data-based loans, we are empowering MSMEs like Suresh’s to maintain uninterrupted operations, thus embodying the spirit of “MSMEs Should Run Non-Stop”.

Data as Collateral – A few big learnings

Building Trust out of Doubt.

1. Transparency builds Confidence: We’ve learned that clear communication about data usage builds trust. When MSMEs understand how their transactional data translates to better financing terms, their initial hesitation turns into active participation. 
2. Real-Time adjustments win Hearts: Our dynamic financing terms have been a game-changer. They actually get better as businesses share more data and demonstrate good financial behavior. It’s a partnership in growth, not just a loan.
3. Education is Key: Teaching MSMEs how to leverage their operational data for financial gain has created a ripple effect of digital adoption.

Data privacy concerns – Addressing the elephant in the room

We face these concerns every day. Many business still hesitate to share their business data with us. And this is how we are tackling these concerns :

1. Bank-Grade Security: Your data is protected by the same level of encryption used by leading banks. We don’t just meet industry standards; we exceed them.
2. You’re in Control: Our platform gives you granular control over what data you share. It’s not all-or-nothing; it’s on your terms.
3. Transparency in Usage: We provide clear, simple explanations of how your transactional data influences your financing terms. No black boxes, just clear benefits.
4. Data for Good: Your shared data doesn’t benefit you only. It contributes to a more inclusive financial ecosystem, helping other MSMEs access better financing options.

Your Data is our responsibility!

The Road Ahead: Data-Driven Lending for MSMEs 

Imagine a world where your business data works as hard as you do. Where your daily transactions automatically build your creditworthiness and speeds up financing for your business. Where financing through invoices or purchase orders happens in minutes, not months. This world is here. It is happening now. You can experience this with us, ProFinTech.     

Are you ready to let your data unlock your business potential? Talk to us or write to us. Join us in making MSME financing faster and more affordable.

Because we believe that Data is the best and most powerful Collateral that you can ever have, and your business should run non-stop & grow bigger and bigger. 

Credits : Pradeep Kumar