Empowering India’s MSMEs: ONDC’s Transformative Role in E-Commerce and Financial Inclusion

A whitepaper by Deloitte India, titled “MSMEs on ONDC,” highlights the role of the government’s Open Network for Digital Commerce (ONDC) initiative in revolutionizing India’s e-commerce landscape and empowering the MSME (Micro, Small, and Medium Enterprises) sector to participate in the projected $350 billion e-commerce industry by 2030. Here are the key areas where ONDC can benefit Indian MSMEs:

1. Transforming Demand and Supply Networks: ONDC offers an efficient and cost-effective platform for brands, retailers, and MSMEs to connect with both their customers and suppliers. On the demand side, MSMEs can gain access to a wider customer base, expand their business through digital commerce, utilize various logistics options, and improve access to credit. On the supply side, they can extend their reach and maintain a competitive edge, leading to enhanced access to credit.
2. Opening New Markets for Financial Institutions: Historically, MSMEs have had limited access to banking services, and a lack of data about them often resulted in credit rejections based on traditional decision models. ONDC is expected to digitize SME data using transaction data and financial technology services, enabling financial institutions to better understand and cater to this segment’s needs. Increased ONDC adoption in tier two and three cities and rural areas will create new market segments for banks, fostering tailored products and services.
3. Streamlining KYC and Credit Models: Faster Know Your Customer (KYC) processes are critical for financial service providers’ involvement in the ecosystem. Traditionally, KYC for businesses has been a challenging and costly procedure, mainly due to the lack of publicly available MSME data. The ONDC ecosystem’s high-frequency, lower-value transactions require efficient KYC processes. A CKYC-like model for businesses and collaborative data sharing among ecosystem participants can encourage larger financial institutions to participate.
4. Promoting Credit Card Adoption: Credit cards are an essential tool for MSMEs’ working capital management but are underutilized due to limited understanding and reluctance from financial institutions. ONDC’s data generation capabilities can simplify credit assessments, making it easier for financial institutions to access a broader MSME community. Collaborations between financial institutions and fintech service providers can simplify corporate credit card administration and encourage MSMEs to adopt these financial tools.

In conclusion, ONDC has the potential to revolutionize India’s e-commerce landscape, particularly for MSMEs. It can enable these enterprises to expand their reach, access credit, streamline KYC processes, and boost credit card adoption, ultimately driving inclusive growth in the e-commerce sector.