Often, the country’s self-employed and underbanked section shies away from accessing formal credit lines as they do not satisfy the banking formula. Traditional financial institutions staunchly rely on asset-based lending where they have an asset to fall back on in case of default. But, it ignores those millions of potential borrowers who perhaps are viable choices than salaried defaulters.

Also, the on-going pandemic has forced many industries to shut down their business. With the economy slowly getting back-up, these segments are still in search of funds. In the absence of credit scoring and strong financials, scores of MSME and SME’s have succumbed to high-interest loans or credit flow decline. But coupled with the right tools and innovation, cash-flow-based lending can help revive them.

Nevertheless, the landscape is now slowly shifting, with many upcoming FinTech's and NBFCs focusing on cash-flow-based lending. Cash-flow lending takes into account the revenue generation capability of the individual/enterprise based on various factors such as seasonal or market demand. The interest rates and tenure of the loan are adjusted accordingly. This method of lending doesn’t come under the regular pattern of 12-month EMI repayments.

Inspired by the country’s FMCG sector’s ingenious move, this movement is termed “Sachetization,” where good things come in small doses.

Sachetization was spurred off by India’s FMCG sector to capture all facets of the market. They realized that the significant market shareholders were not the ones who could not afford large-ticket items in a single purchase. Starting from shampoo packets to instant coffee, sachetization has a long-standing relationship with the Indian economy. Now, P2P lending has also adopted this model through the means of cash-flow-based lending.

For example, with data insights and cash-flow lending, a farmer can take out loans to reap a better harvest. He need not pay the usual cycle of 12 months but rather avail a customized loan with a repayment tenure based on his crop production. The same formula can be tailored to a different set of customers like fishermen who has an off-season of 4 months due to the monsoon.

Many financial service providers are now partnering with new-age FinTech's to offer sachet loans to their target customers. They are currently restructuring the formula by deploying technology to better understand the MSME/SME’s financial needs.

In a nutshell, making cash-flow-based credit available to every segment will be a small solution that has the ability to spearhead complete financial inclusion.

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