GeM-SAHAY: Providing marginalised access to frictionless working capital

Even though MSMEs account for about 45% of India’s total manufacturing output and contribute about 30% to its GDP, access to working capital remains a persistent challenge for this new engine of growth for the Indian economy. This has now been exacerbated by the elevated working capital pressures largely due to an increase in receivables driven by higher commodity prices and longer than usual payment and cash cycles. The implementation of structural reforms like Goods and Services Tax (GST) and Jan Dhan, Aadhaar, Mobile (JAM) trinity has enabled the integration of many informal units with the mainstream in recent years but assessing the creditworthiness of MSMEs for working capital and pricing their credit risk expeditiously has been difficult because of information asymmetry, particularly with respect to the financial health of their businesses.

A number of measures have been taken by the government to improve access to credit for the MSME sector. While the government’s Emergency Credit Line Guarantee Scheme (ECLGS) played an important role in revitalising the MSME sector, there is an urgent need for MSMEs to have access to fast and frictionless working capital which is decisioned and priced in real time in minutes in a completely automated manner.

As a step towards facilitating the frictionless flow of credit to MSMEs, the Government eMarketplace (GeM) was integrated with SAHAY to launch the GeM-SAHAY app in May 2021 to address the credit availability challenges faced by sole proprietors on GeM. The Government eMarketplace (GeM) was launched in 2016 as a path breaking end-to-end Marketplace for open, efficient & transparent procurement of goods and services by Central and State Government organisations. During the six years of its launch, GeM has registered a total procurement volume of more than Rs 2.45 trillion out of which MSME sellers, women sellers and Startups combined have contributed around 60%. GeM has thus successfully encouraged domestic manufacturing and investment on one hand while strengthening digital equity and financial inclusion on the other. Before the launch of GeM-SAHAY, small businesses on GeM had to validate their financial health and their credit worthiness to banks and financial institutions through manual, cumbersome processes often involving collateral, which delayed the decision on working capital and rendered the accurate pricing of credit risk difficult. Not anymore. GeM-SAHAY pulls up all the relevant data including transaction data directly from GeM to accurately paint a picture of the supplier’s real time financials. Moreover, the arduous task of maintaining paperwork is completely mitigated, as the platform can aggregate the necessary data in real-time whenever required.

One of the limitations of factoring in TReDS and reverse factoring in TReDS second window is the mandatory confirmation of the uploaded invoice by thebuyer which takes time and delays the process of bill discounting. GeM Sahay does not require any confirmation by a buyer and it enables credit for MSMEs at the purchase order level. GeM-SAHAY is thus India’s first fully digital lending product for MSMEs as it enables the complete journey from application to underwriting to sanction and disbursement in real time – all under 6 minutes.

During the pilot phase of integration of GeM with SAHAY, purchase orders with an escrow mechanism were enabled for sole proprietors.After a successful pilot, GeM will now expand its reach to sole proprietors with purchase orders without escrow accounts. This will be accomplished by integrating GeM-SAHAY with Account Aggregators (the national data sharing framework launched in September 2021) to enable the sharing of bank statements completely digitally and in a machine readable format which facilitates machine driven underwriting. This will open up the mechanism to all sole proprietors without any requirement of escrow accounts, thereby significantly opening up access to credit to a much larger number of MSMEs. 

Built on India Stack’s Open Credit Enablement Framework (OCEN), GeM Sahay has helped the smallest of businesses in the remotest of locations (lenders who wouldn’t previously consider lending in the Andamans have begun to do so) to gain access to timely credit, thereby solving problems arising out of delayed payments and liquidity issues and affording them an opportunity to grow with GeM. The platform is a demonstration of how the next wave of digital disruptions have shrunk the world and how financial inclusion is no longer constrained by geographical limits. With 6 lenders, namely, Kotak, ICICI Bank, TATA Capital, 121 Finance, Oxyzo and Ugro already onboard and another 9 in the pipeline, the marginalised and underprivileged on GeM can now have access to instant competitive credit in real time to meet their working capital needs. This is only the beginning and frictionless financing by digital lenders and fintechs is bound to grow exponentially in the days to come.

Talleen Kumar is Member (Finance), Space Commission, Atomic Energy Commission and Earth Commission and former CEO, Government eMarketplace, and Nipun Kohli is volunteer, iSPIRT. Views are personal.