Credit and finance for MSMEs: The Reserve Bank of India’s (RBI) decision to include the Goods and Services Tax Network (GSTN) as the latest Financial Information Provider (FIP) under the Account Aggregator (AA) framework has been hailed as a major push to further ease access to bank credit by MSMEs. GSTN is the non-profit and non-government organization that manages the entire IT system of the GST portal.

Account aggregators (AAs) are a new class of non-banking financial companies (NBFCs) that offers account aggregation services — retrieving or collecting information of its customer pertaining to their financial assets or information and consolidating, organizing, presenting it to the customer (for instance a bank) or any other person as per the instructions of the customer — in exchange for a fee.

The consent-based information collected is in respect of MSMEs’ bank or NBFC deposits, SIPs, government securities, equity shares, bonds, mutual funds, insurance policies, exchange traded funds (ETFs), debentures, etc. With the latest announcement by RBI, GST Returns, viz. form GSTR-1 and GSTR-3B would also be available as information as GSTN joins the list of existing FIPs such as banks, NBFCs, asset management companies, depositories, insurance companies, pension funds, etc., providing related information to AAs.

“Inclusion of GSTN will give way to the traditional approach of lending based on balance sheet similar to how it is used for registering an MSME on the Udyam portal now. So rather than depending on some projection-based data to lend, of which the veracity cannot be confirmed, cash flow-based data with GST details will bring a great change to MSME lending,” a SIDBI official told FE Aspire seeking anonymity.

SIDBI is also into direct lending to MSMEs apart from providing financial support to small financial institutions and banks which in turn lends out money to MSMEs. “It (GSTN inclusion in AA framework) will also benefit SIDBI significantly since we are also into direct lending,” the official added. 

For NBFCs in India, many of which are into MSME lending, GSTN inclusion will provide the most authentic picture of the borrower to lenders in the credit decisioning process. Raman Aggarwal, Director at Finance Industry Development Council, a representative body of NBFCs in India, told FE Aspire, “GSTN provides another level of comfort because one can fudge his/her financial books but not the GST data. Hence, this will reduce the time to disburse credit by banks. 

Particularly for NBFCs, “this is going to have a very positive impact as NBFCs lending to MSMEs don’t expect any collateral. As of now GSTN data has been confidential information but now it will be accessible after required approvals,” Aggarwal noted. Moreover, this will “also nudge MSMEs to comply more with GST regulations,” said Abhishek Basumallick, Chief Equity Advisor at equity research firm Intelsense.

Notably, a challenge assumed in the success of AAs is reluctance from MSMEs to give consent to data sharing. However, a survey of over 1,000 MSMEs by Boston Consulting Group earlier this month noted that around 40 per cent of respondents are willing to share their data provided they get personalised offers from banks such as lower interest rates, discount on processing charges, better customer experience etc. 

Currently, CAMSFinServe, Cookiejar Technologies, FinSec AA Solutions, NESL Asset Data, Perfios Account Aggregation Services, and Yodlee Finsoft are among the NBFC AAs in India with an operating license.