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GST Data Trail to Help SMEs in Securing Credit

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Filings under new tax system set to reduce risk, cut cost

While small and medium businesses are expected to face teething trouble in complying with the Goods and Services Tax regime, the new tax system will also open an opportunity for them to access credit as GST filings are set to become a significant data source for flow-based lending.

Both banks and digital lending players say GST filings can be the best trove of information to lend to small businesses and will also reduce risks and cut costs while scoring these businesses for credit worthiness. “GST will help make invoicing and data analytics around businesses more credible.In the long term, it will be beneficial for both SMEs and lenders,“ said Rajeev Ahuja, head of strategy , retail and financial inclusion at RBL Bank.

“For banks like us, it will help reduce costs of doing business. Today , assessing small business involves feet on street and operational work. With GST, there will be a significant opportunity for many service providers to leverage that data. There will be more authentic information on small businesses, which can also help reduce risks in lending,“ he added.

GST, which is set to roll out from July 1, is expected to see eight million taxpayers come under the new tax regime, with more than 2 billion invoices expected to be filed every month.

The GST filings are expected to be one of the most significant data points for flow-based lending, given the authenticity and complete in formation of an SME's financial health. Flow-based lending entails lending based on cash flows of a company as opposed to collateral or asset-based lending.

“GST data will become the largest repository of verifiable cash flows and transactions of business. Small businesses will be able to provide a secure, verifiable trail of transactions in their supply chain. This will complete the data footprint of an SME and will complete the picture of a SME's financial health.

This will greatly help in flowbased underwriting for us,“ said Sashank Rishyasringa, cofounder of digital lending startup Capital Float. Rishyasringa said GST data of SMEs can not only reduce costs but can also speed up the process of underwriting and lending.

“Potential SME borrowers can provide real time, secure and verifiable data of their GST filings.For us, we can instantly verify financial documents. It will save on the costs of verification and will also cut down delays in processing of loans,“ he said.

The Economic Times New Delhi, 25th May 2017

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