Need for a transformational shift in Secured Lending Products for SME/MSME

In our recently conducted virtual event, Digi-Dialogues on Secured Lending: Strategies for Digital Future we hosted a panel discussion on the Need for a transformational shift in Secured Lending Products for SME/MSME
Our Speakers:
Ramaswamy Subramanian, Chief Product Officer, Karnataka Bank
Suyash Kothari, Head - Product Growth and Propositions, IDfy
Mudit Jain, Founder and CEO, Synoriq
Sujay Prakash, Business Manager- Secured Assets & LAP, Northern Arc Capital
Raghav Aggarwal, Chief Risk Officer, Capital Small Finance Bank

Moderator: Sameer Singh Jaini, Founder & CEO, The Digital Fifth

Key Highlights:
Challenges in Digitization and Customer Engagement: The panel identified significant challenges in digitizing processes for secured lending in the MSME sector, particularly for segments like LAP (Loan Against Property) and commercial vehicles. The cost of customer acquisition (CAC) remains high, with some estimates ranging between ₹50,000 to ₹25,000 per transaction. Additionally, the effectiveness of digital channels is limited, leading to a reliance on physical touchpoints and Direct Selling Agents (DSAs).
Secured Lending in MSME Sector: Panelists, including representatives from Karnataka Bank and Capital Small Finance Bank, emphasized the importance of the secured lending space in their operations. With MSMEs being a traditional strength, there’s a strong focus on growing this segment. However, challenges like inadequate collateral and the need for a mindset shift towards valuing creditworthiness over collateral strength were highlighted.
Strategic Initiatives and Market Dynamics: The discussion also delved into the size and growth potential of the LAP market, particularly among NBFCs, where the market is estimated to be around ₹2 lakh crores. Innovations and strategic changes are expected to enable faster, more cost-effective financing for smaller enterprises, expanding the reach of financial services to underbanked regions.
Technology and Risk Management: Technological advancements were discussed, particularly in the context of improving risk assessment and fraud prevention. The role of companies like IDfy in enhancing onboarding processes and developing robust risk profiles was emphasized. The importance of integrating technology to better understand and manage risk, while also reducing fraud, was a key focus.
Opportunities and Future Outlook: The panelists concluded by discussing the vast opportunities in the secured lending market, particularly in the MSME sector. Despite the challenges, the market continues to grow, with many NBFCs and small finance banks expanding their portfolios. The need for a collaborative approach, combining traditional banking strengths with fintech agility, was identified as crucial for future success.