Access to credit in India is a highly structured process that comes with an extensive risk evaluation process. With requirements for collateral, audited financial statements, and strong long-term credit scores, the lending system has been designed for accountability and trust. However, it often filters out Micro, Small, and Medium Enterprises (MSMEs) in the country, who do not have regular revenue cycles, fixed operating models, or detailed financial records. 

Founded in 2015, Indifi is a digital platform that helps lenders consider the unique operational conditions of MSMEs so that they can assess risk in a more holistic manner. Launched by Alok Mittal and Siddharth Mahanot, this Gurgaon-based platform is using machine learning to analyze alternative, MSME-specific data and provide appropriate credit solutions.

How does Indifi support MSMEs?

Most MSMEs—which contribute 31.1% of India’s GDP and provide employment  for ~39 crore people—struggle to expand their operations because of inadequate access to credit. Some estimates state that as a whole, these businesses face a credit gap of ~INR 30 lakh crore. This shortage of capital, in turn, bottlenecks the country’s potential to innovate across sectors.

Generally, the factors considered during assessment for loan eligibility are chosen based on what has worked when lending to large businesses. Indifi’s lending assessments, however, take a number of additional factors into account that are specific to MSMEs. These include records of banking transactions, GST records, and—most importantly—sector-specific market trends. 

Rather than expecting all loan candidates to align with the same market growth parameters, Indifi recognizes that different MSMEs have different financial cycles based on the work they do. For example, it notes that MSMEs in the food sector may have more rapid returns on investment than businesses working in health technology. By considering this difference, it avoids disqualifying businesses that are slower to make profits and encourages lenders to consider returns in the long run.

After weighing all given factors and coming up with credit assessments, Indifi digitally shares its data with linked banks and other financial institutions. This hastens the process of loan approval for all involved parties. Ultimately, it ensures that lenders make safe decisions while also rewarding the most financially responsible and innovative MSMEs.

How widely is Indifi used?

The Indifi platform is used by more than 1.3 lakh MSMEs across India, including in Tier-2 and Tier-3 cities and villages. Of these, 30% are first-time borrowers. 

In total, it has helped disburse ~150,000 loans in more than 400 Indian cities, and ~25% of these disbursed loans have been for MSMEs where at least one promoter is a woman entrepreneur. 

The users have come from 27 states and 6 Union Territories, reflecting the platform’s pan-Indian reach.

Investment in the platform

Indifi has raised considerable funding from the time of its inception to the present. Global investors in the platform include ICICI Venture, British International Investment, and Elevar Equity among others. As per the Credit Rating Information Services Of India Limited (CRISIL), it has received ratings of Crisil BBB/Stable and Crisil A2.

Expanding to reach more businesses

With an increasing interest in digital governance and management in India, the conditions are already favorable for initiatives such as Indifi. By further adopting digital infrastructure in credit assessment programs, policymakers can demonstrate support for MSMEs in tangible ways. 

Existing programs that could receive more press include the Account Aggregator (AA) framework, which streamlines the exchange of financial data between financial institutions, and the Reserve Bank of India’s United Lending Interface (ULI), which allows lenders to view supplementary information related to lending (e.g., land records).

Over time, by expanding these programs and pushing for the full digitization of credit evaluation, state governments could help MSMEs build their credit scores and hence benefit from economies of scale. As a direct consequence of increased credit access, businesses can invest in more capital and create more jobs, ensuring self-sustainability in the decades to come.