Digitalisation promotes adoption of soft information in SME credit evaluation: the case of Indian banks

Abstract

Small and Medium Enterprises (SMEs) account for half of the employment in developing economies and are a significant part of their economic growth. In spite of this, SMEs are under-financed by banks, which have been disrupted by financial technology (fintech) firms. This qualitative multi-case study examines how Indian banks are utilising digitalisation, soft information, and Big data to improve SME financing. The participants shared their insights on the way banks adopt digital tools, sources of soft information (e.g., customer and supplier relationships, business plans), and factors that influence the implementation of Big data in the SME credit evaluation process. The major themes include: banks are improving SME financing operations through digitalisation, and IT tools can verify SME soft information. Soft information attributes that emerge from addressing SME information opacity include supplier relationships, customer relationships, business plans, and managerial successions. For SME credit managers, developing partnerships to access publicly available soft information created by industry associations and "online B2B trade platforms" is a high-priority recommendation. To enhance the efficiency of SME financing, banks should obtain the consent of SMEs before they access their private hard information through trade platforms.