Getting through the challenges of SME lending during the pandemic


As COVID-19 resurfaces in India, fintech lenders are once again struggling with the same kind of dilemmas. Small businesses face a growing set of restrictions, posing challenges for lenders who provide them with credit. In such an unpredictable environment, fintechs face a plethora of unanswered questions.

Here are some key points that might help them overcome these challenges.

Reduction is not the solution

Don’t try to reduce operations. Instead, try to move the business to the desired sectors or segments depending on the macroeconomic environment. Businesses need to be flexible to frequent changes based on changing environmental dynamics. A good number of lenders try to focus on fewer segments, which they perceive as low risk. Instead, widen the base. Diversify the risk. Lend to a greater number of segments, thus reducing unanticipated risks specific to the sector.

An even better approach is to focus on the scale and size of businesses rather than segments. Define the target segment based on the scale of the company and then try to find healthy companies in this area. This sector neutral approach works well in times of volatility.

Move your cost base from fixed to variable

Try to move as many cost lines as possible to variables. Reduce fixed compensation and reward employees with variable compensation. It also leads to better employee productivity. Outsourcing is one way to move in this direction. Outsourcing processes brings efficiency gains, reduces costs and makes them variable. One thing that needs to be guaranteed is that outsourcing does not come at the expense of customer experience or quality. Some key activities may not be outsourced from a compliance perspective.

Data science is the key

In today’s unstable environment, data science plays a central role. Processes based on solid data models tend to make fewer errors. In loan language, predictive dashboards have become the backbone of new age fintech companies. AI and ML today help with bounce prediction, profile analysis, TAT reduction, better customer experience, early warning triggers, etc. Investments in data science are no longer an investment for the future. It helps your business navigate the current times effectively.

Monitor your credit performance

Regular and detailed portfolio reviews are imperative to building a successful loan portfolio. In times of uncertainty, its importance cannot be overstated. Involve all stakeholders in these reviews. Focus on mistakes rather than success. Learn from your mistakes and improve them.

Interact with your customers constantly. Identify “stressed” or “likely to be stressed” customers. Offer flexible reimbursement options tailored to the customer’s needs.

Be open to restructuring before the customer fails. Don’t compromise on the collections infrastructure. In times of stress, collections are what set your credit book apart.

Use underwriting innovations

Try to incorporate new, modern tools into your underwriting approach. Use additional data points to better assess the customer. Engage with relevant partners who meet your target segment. These partners can not only provide you with relevant potential customers, but also many data points with additional information. Plus, develop predictive dashboards. Artificial intelligence can spot trends that humans sometimes miss. Encourage the culture to judge a business holistically, rather than relying on a few formulas.

Technology is a key differentiator

In these volatile times, technology keeps you nimble and adaptable. Organizations with full stack technology in their processes will often find themselves reacting more quickly to changes. Lower costs, better productivity, fewer errors, better TAT are just a few of the other few benefits that technology activation brings.

In times of pandemic, where companies must be prepared for multiple scenarios, BCP, constantly changing regulatory requirements, etc., technology becomes the most important catalyst.


More organizations fail due to liquidity issues than any other factor. In the lending industry, it becomes even more important. In 2020, many lenders found themselves struggling on the liquidity front. As the market struggles, a lender faces liquidity issues on both the supply side and the collections side.

Plan liquidity well. Always plan your cash flow according to “Plan B” because by the time the pandemic begins to affect businesses, your “Plan A” is already out of the window. Don’t spread out too much and be careful. Use the co-loan as a template. Look for balance sheet partners who can help you with balance sheet financing in such circumstances.

(Disclaimer: The opinions and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)

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