With GST collections on the rise, analytics will emerge as an important tool for MSME lending in 2023, says Jocata.

• To enhance MSME credit decisions, Jocata has launched a composite score that uses deep behavioral and predictive analytics.

• It offers the possibility for banks to roll out situation-specific solutions such as embedded loans, GST bridge loans, sachet loans, BNPL, and cash flow-based loans.

• Faster credit can be provided to small and medium-sized businesses by shortening the evaluation time to less than 2 minutes and the loan disbursement time to less than 6 hours.

The Government of India raised Rs. 1.52 trillionGoods and Services Tax(GST) reported a 16.6% year-on-year increase in October, driven by festival spending, improved compliance and higher tax rates. This collection is expected to grow further and exceed the FY23 budget estimates by Rs. 1.3-1.4 trillion won. Among these, Jocata has launched SME DNA, a proprietary AI/ML-based risk and business intelligence score that fast-tracks banks’ priority sector lending and helps MSMEs review and improve business performance and access credit in a timely manner.

Prashant Muddu, Jocata CEO and MD

“The GST framework is a treasure trove of business transaction data and is now starting to drive lending decisions for financial institutions, especially small and medium enterprises.” said Prashant Muddu, Jocata CEO and MDB2B digital lending and compliance fintech.

SME DNA comes at a time when demand for GST-based analytics is increasing. Strong regulatory drive, increased compliance with GST filings, and the recent announcement of GSTN as a Financial Information Provider (FIP) under the Account Aggregator framework are expected to lead to easier access to large volumes of consent-based GST data and improved analytics.

As the government emphasizes on extending credit terms for SMEs, the SME DNA Score will accelerate the lending journey for SMEs by helping underwriters make ‘Go-No-Go’ decisions in less than two minutes. Through predictive insights, the SME DNA Score will drive credit innovation for banks in the form of contextual and targeted lending solutions and products aimed at the MSME sector, including embedded lending, GST bridge lending, sachet lending, BNPL, cash flow-based lending, and more.

At an early stage, the SME DNA score has helped one of the top five private sector banks in India build its business model in the small ticket segment of unsecured corporate loans in the range of Rs. Overdraft of 2 million to 20 million won, up to a maximum of 2 million won, was secured. Muddu said it has made $200 million digitally since its inception.

“The prospects for GST-based analytics are very bright and can significantly reduce the current challenges banks face in credit decisions in priority sectors, which stem from over-reliance on expert judgment resulting in long decision times.” I added

GSTN filings are considered a gold mine of reliable, digitally available and dynamic data. SME DNA leverages cutting-edge data science techniques on GSTN filings to provide underwriters with more transparent insights throughout the business cycle of credit applicants and can reduce credit processing time (disbursement) for SME borrowers from 2-5 days to less than 6 hours.

Jocata’s data science team has analyzed submission data from MSMEs since the advent of GSTN to develop scores that indicate the risk of MSME businesses. This score assesses a company’s propensity to pay taxes and determines the health of, and (over) dependence on, the SME’s buyers and suppliers, among other risk factors. It also helps bank underwriters and business teams improve credit decisions and monitoring, identifying early warning signals at corporate and portfolio levels. This is especially important at a time when banks and financial institutions are under pressure to reduce non-performing assets (NPAs). This is key to alleviating the lack of trust that financial institutions face when lending to small and medium-sized businesses and providing transparency and information throughout the business cycle.

Jocata has been working with some of the largest financial institutions to strengthen their digital transformation journey across its suite of fintech solutions, including digital onboarding, risk scoring and assessment, credit underwriting, fraud prevention, API infrastructure and management, and early warning systems. Key banking partners include ICICI Bank, Axis Bank, Bank of Baroda, IndusInd Bank, Kotak Mahindra Bank, RBL Bank, Federal Bank, Standard Chartered, DBS Bank, Tata Capital, Airtel Payments Bank and American Express.