Small enterprise loans are typically provided to entrepreneurs for financing working capital or for capital investments. It has traditionally been the preserve of banks.
Credit to many robust businesses gets denied due to lack of collateral or due to lack of availability of documented sources of income, a requirement of most traditional lenders. Therefore, there is clearly a significant “missing middle” segment that has been largely left out by the mainstream credit delivery channels. This segment consists primarily of relatively unorganized sole proprietorship or partnership firms, thus giving rise to the requirement of enterprise-based lending.
The total demand for finance in this segment is estimated to be USD 500 billion with a staggering 80 percent coming from the informal sector. The emerging trend of new age lenders adopting innovative underwriting approaches to estimate the cash flows further opens up opportunities.
With robust credit underwriting, strong risk management processes and increased use of technology, there is a strong promise of high growth and good credit quality in this sector.
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