Breaking obstacles in MSME lending: PayU Finance's progressive strategy

India’s micro, small and medium enterprises (MSMEs) underpin almost 30% of India’s GDP and make use of over 110 million individuals. Nevertheless, solely round 40% of those companies can entry formal credit score. Legacy banks battle with small‑ticket loans and lack the information instruments to underwrite enterprises with irregular money flows or scant collateral. The result’s an enormous credit score hole that drives many MSMEs into the arms of casual lenders charging punishing charges.

PayU Finance, an RBI‑regulated NBFC, is rewriting this story—harnessing real-time digital transaction information, behavioural insights and strategic platform partnerships to ship tailor-made financing that adapts to small enterprise realities.

Bridging the credit score divide

Conventional lending fashions are constructed for big enterprises with audited steadiness sheets. “One of the important points is the absence of structured monetary data, which makes it difficult for conventional monetary establishments to judge their creditworthiness,” explains Deepak Mendiratta, Chief Government Officer, PayU Finance. With out formal data, many MSMEs can’t display creditworthiness, and banks usually deem servicing small‑ticket loans financially unviable.

Seasonal and retail companies, particularly, see revenues surge throughout festivals and hunch off‑season, but face fastened month-to-month EMIs that misalign with money flows.

“MSMEs face inconsistent money flows, particularly in sectors like retail, hospitality and seasonal companies, the place fastened month-to-month compensation fashions don’t align with their income cycles, growing the chance of default,” Mendiratta provides. This mismatch drives entrepreneurs towards casual lenders, trapping them in cycles of excessive curiosity and opposed phrases.

A knowledge‑first lending ecosystem

Recognising these limitations, PayU Finance constructed a multichannel SMB lending platform that faucets proprietary and companion information streams. It developed an alternate credit score analysis mannequin that leverages actual‑time digital transaction information, behavioural insights, and collaborations with ecosystem companions to evaluate creditworthiness.

The engine runs on three pillars. First, PayU’s fee gateway—serving over half one million retailers—feeds steady UPI and card‑fee information. Subsequent, alliances with PhonePe, BharatPe, Meesho, Swiggy and Paytm open doorways to further QR‑transaction histories and order volumes. Lastly, tech primarily based algorithms synthesize GST filings, commerce receivables, and platform engagement to generate a complete and dynamic evaluation of the borrower’s monetary well being.

“Speedy formalisation and digitisation of the MSME sector has led to important progress of customers’ digital info…offering new sources of digital monetary info comparable to UPI QR primarily based funds,” Mendiratta notes. “This makes it simpler for NBFCs comparable to PayU Finance to evaluate the creditworthiness of MSMEs by partnering with different ecosystem gamers.”

Equated day by day instalments: A service provider‑centric USP

On the core of PayU Finance’s providing is the Equated Each day Instalment (EDI) mannequin, a departure from lump‑sum month-to-month EMIs. Reasonably than demanding one giant fee, EDI breaks the mortgage into small, day by day quantities that mirror gross sales patterns.

“The EDI mannequin is uniquely designed to synchronize mortgage repayments with retailers’ day by day earnings. By doing so, it alleviates the tip‑of‑month monetary burden that conventional EMIs impose, making it simpler for MSMEs to handle their funds and keep liquidity,” Mendiratta explains.

Key Advantages

01. Money‑stream concord: Each day instalments observe intently with gross sales, eliminating month‑finish crunches and preserving working capital for stock, payroll and progress initiatives.

02. Decreased default threat: Smaller funds are extra manageable, and lacking a day by day EDI fee serves as an early warning sign for lenders, enabling them to take swift, proactive measures moderately than ready till the tip of the month for an EMI due date. This actual‑time visibility empowers PayU Finance to supply well timed assist—rescheduling funds or sending reminders—earlier than delays escalate.

03. Larger approval charges: By aligning repayments with money inflows, lenders acquire confidence in a service provider’s skill to remain present, opening formal credit score to enterprises beforehand deemed too dangerous.

04. Decrease Curiosity burden: On a Rs 100,000 mortgage at 21.46% p.a., EDI debtors save roughly 7.15% in curiosity in comparison with EMI—Rs 11,142 versus Rs 12,000—as a result of day by day repayments scale back the excellent principal sooner.

05. Enhanced stability: Predictable, small‑worth funds scale back stress and permit entrepreneurs to give attention to core operations moderately than looming debt obligations.

Partnerships and future trajectory

No fintech can rework MSME lending in isolation. PayU Finance has already empowered 3.5 lakh retailers with tailor-made credit score options and is ambitiously aiming to serve 25 lakh retailers over the following three years.

By strategic partnerships with QR code suppliers like PhonePe and BharatPe, in addition to platforms like Meesho and Swiggy, PayU Finance implements information‑pushed lending practices. Embedding credit score on the point-of-sale slashes approval occasions to below 24 hours, reduces documentation, and makes financing a seamless a part of day by day enterprise operations.

Wanting forward, PayU Finance is charting a number of strategic initiatives. “PayU Finance plans to combine the Account Aggregator framework into its technique. This progressive framework will democratize monetary information‑sharing, broadening MSMEs’ entry to credit score by providing an entire monetary overview and increasing the scope of obtainable monetary providers,” Mendiratta reveals.

The corporate additionally intends to leverage the Credit score Assure Scheme (CGS), MUDRA loans, and TReDS to boost information reliability and threat mitigation. “We’re actively working in direction of attaining Precedence Sector Lending (PSL) classification. This alignment will allow us to supply further credit score assist to sectors deemed important by regulators, additional extending our attain to precedence areas,” he provides.

With an ambition to scale its service provider‑lending portfolio to Rs 10,000 crore over the following three years, PayU Finance is poised to revolutionise MSME credit score inclusion.