What fintechs can do for easy transition of MSMEs to digital, overcome digitization-related challenges

Jul 4, 2022

Technology for MSMEs: Digitisation of business operations for small businesses at scale is a relatively new occurrence. There have been many reasons why small businesses are yet to catch up with embarking on digital journeys for the efficiency of their business and financial needs. Traditionally, there were many barriers to digital adoption – unavailability of affordable smartphones, lack of data connectivity in the hinterland, lack of understanding of digital and unwillingness to transition to digital.

We have made good progress on the infrastructure side to facilitate digital adoption. While MSMEs in India are gradually adopting digital, we, the tech innovators, need to actively focus on building digital platforms that provide tangible value, unique to the problems faced by small businesses. If the technology fails to offer any significant value to MSMEs or does not fit with the regular business behavior patterns of small business owners, the transition from offline to online will not take place.

When it comes to innovating for MSMEs, there is often a lack of benchmark for the problem you are trying to solve because of first-time digital users or first-time solution phenomena. Here are some of the MSME business and user behavior-related insights observed through our constant engagement with MSMEs. Keeping these MSME business behaviors at the centre while innovating for the segment is critical for the fintech community to ensure an easy transition of the MSME community to digital and overcome digitization-related challenges. 

Pay Attention to Cash

India has always been a cash-driven economy, and it will remain the same for the foreseeable future, especially in semi-urban and rural regions. For any small local business, cash management is a huge pain point. While it’s great that we have an online payment infrastructure in place, we also need to focus on tools that can help with cash management and support merchants with a collection of pending payments.  

Efficient cash flow is the most significant advantage that digitization brings to this unorganized sector. For instance, estimate the time and resources involved for a vegetable vendor who has to manage cash transactions for 25 per cent of her customers in a day by arranging cash change, notebook entries for customers who are not paying upfront, sending reminders for pending payments, etc. In reality, most small retailers will have more than 25 per cent of their customers who prefer cash transactions. So, innovate to ease the cash-driven business behaviors for MSMEs.        

Benefit of Cloud Backup

Anything physical can be lost. Books of accounts and even a smartphone, for that matter. But what you can’t lose is cloud-backed data. One of the most significant advantages of digitization is that the merchant’s data is always safe, no matter what. Losing or damaging a phone, notebooks, or business records page is a prevalent problem for MSMEs. Hence, data backup is a huge value add. Educating users that they can acquire their password-protected data anytime and from any device is an extremely important encouragement for MSMEs to transition to digital.


When you are building for the smallest of the merchants in the economy, providing technology on the smartphone with the simplest intuitive user interface is only a first step. It would help if you thought about simplification beyond the user interface. Can the tech make payments, accounting, and finance easy enough for anyone to enter and read records? Can small businesses avail business-related data analytics in simple, easy-to-understand insights? Can they save time and do away with lengthy paperwork and operational hassles while looking for business loans? To what extent does technology simplify the processes and practices for MSME businesses directly impacts the value they see in digitization.

Enhance Trust Factor

With digitization, every transaction or data entry in the MSME supply chain can have real-time visibility. MSMEs in India are a very trust-driven community. They value their business partners and their relationships with them. Hence, focusing on problem-solving that can minimize errors and grievances is crucial. For instance, often, when records are maintained in physical books, the chances of errors are not just high, but it is also tough to identify and resolve later. With digitization, records are created and shared in real-time on the phones of all the business parties. Digitization minimizes the disagreement on something at a later date.    

As we digitize more and more aspects of MSME business and finance, we will bring more efficiency to the ecosystem. The most significant advantage digitisation has provided to this community is time-saving on mundane manual work. Automating tasks like managing ledgers, payment collections, and cash management save hours for a merchant in a day. For any MSME, time is the most critical aspect as their income is directly related to the time they spend on the business.  

Digitisation is hands down a game changer for MSMEs. I believe actively listening to the MSME community is critical as no problem they face regarding their business operation is a small problem. We must listen, understand and resolve these problems through the right solutions. Also, constant product experimentation helps in understanding if the tech fits well with the business behavior patterns of MSMEs. Ensuring MSME’s smooth transition to digital is the responsibility of the tech community. 

Ravish Naresh

CEO, and Co-founder, Khatabook

The original article on the Financial Express