Human errors and biasing can be reduced by providing an accurate assessment of the documentation through the use of contactless virtual systems.
SMEs or small and medium-sized enterprises are often referred to as the driving force of economic development, employment opportunities, and innovation prospectus. They account for the two third of the global workforce, contribute towards more than half of the global GDP production, and project their participation in more than ninety percent of the worldwide business sectors.
Lack of adequate financial resources and funding hinders the prospectus of exponential growth among the SMEs as the formal and informal SMEs are vulnerable to a massive financial crisis. The most conventional method associated with the form of financing with SMEs includes lending by the banks, which are bound by enormous legal constraints and red tape in their mode of operation. They do require a tedious onboarding process, data monitoring, portfolio management, and compliance with regulatory policies prior to the acceptance of the loan proposal.
Benefits of digitalization in SME financing
Disjoint processes associated with the financing of the SMEs in a bank are streamlined and brought under a centralized control system to deliver effectual output and enhanced customer relationships as well. The inclusion of technology helps in the automation of the end-to-end process accompanied by and provides more significant insights to the customers on their credit scores and risk management capabilities.
Digitalization paves the way for remote, faster, and touch less onboarding process of SMEs compared to the traditional modes and assists in accelerating the data flow between the connecting nodes with the help of centralized digital platforms. The use of predefined algorithms and programs helps in reducing the time associated with loan optimization and disbursement among the customers and helps in attaining less operational costs accompanied with manual labor.
Digitalization also features the inclusion of artificial intelligence and machine learning to ease the daily regimes and can provide real-time dashboards for tracking the repayment life cycle of the loan process. Human errors and biasing can be reduced by providing an accurate assessment of the documentation through the use of contactless virtual systems.
Challenges to be dealt with:
Complex documentation and verification process
With the advent of digitalization and automation into the working regime of the lending process of the banks, the time taken up for the cycle is considerably reduced as the prospectus of underwriting, background checkups, document verification, loan calculations, disbursement and loan repayment modes are all automatically generated. It has significantly aided in the reduction of the enormous amount of paperwork and location visits associated with it which led to the development of large unorganized data packets.
Streamlined mode of operations
The digitally assisted lending process by the banks to the SMEs helps them to cover up their low-scale cloud backup facilities and inefficient coding patterns in their software systems. They increase the speed, transparency, and agility of the banking process as they become more flexible and considerate to even small-scale industries. The entire process associated with financial lending can be streamlined by integrating proper decision-making, exercising centralized control, and providing for seamless customer relationship development over its operations.
Risk mitigation policies
Fully automated systems assisting and governing the process of lending help the banks to be free of their worries in handing over loans as discrepancies over human errors and biasing are minimalized. The use of data generated by the software systems can be put into the development and analysis of affordability ratios, financial statements, and supplier statistics as well. The inclusion of modern-age technology into the operational regimes has severely cut short the time associated with the disbursement of loans and operating costs in giving out and verifying the loan credentials.
