From Digital Transactions to Formal Credit: A Review of FinTech-Enabled MSME Financing in India – The Role of Alternative Data, Account Aggregators and Digital Public Infrastructure

Micro, Small and Medium Enterprises (MSMEs) play a crucial role in India's economic development by contributing to employment generation, entrepreneurship, innovation and inclusive economic growth. Despite their significant contribution, limited access to formal and affordable credit remains a major challenge for MSMEs, particularly small and emerging enterprises. Traditional credit assessment mechanisms largely depend on collateral, financial statements and established credit histories, often restricting the financing opportunities of enterprises operating in the informal and semi-formal sectors. In this context, the rapid evolution of Financial Technology (FinTech), digital payment systems and Digital Public Infrastructure has created new opportunities to transform the MSME financing ecosystem. The present study aims to review existing literature on the role of FinTech-enabled financial services in improving formal credit accessibility among MSMEs in India. It specifically examines the potential contribution of digital transaction records, alternative data-based credit assessment, Account Aggregator frameworks, digital lending platforms and Artificial Intelligence-based credit scoring mechanisms in facilitating access to institutional finance. The study further explores how digital financial information can reduce information asymmetry, enhance creditworthiness assessment and improve the efficiency of lending decisions. Based on a thematic review of twenty selected research studies and academic contributions, the paper identifies emerging opportunities, challenges and developments in technology-driven MSME financing. Particular attention is given to issues relating to data privacy, cybersecurity, algorithmic bias, digital infrastructure and financial exclusion. The review highlights that although FinTech innovations have the potential to improve credit accessibility, their effectiveness depends on digital adoption, data quality, enterprise formalisation, lender practices and appropriate regulatory safeguards. The study identifies significant research gaps in integrating digital payment data, alternative credit assessment mechanisms and actual formal credit outcomes within the Indian MSME context. It proposes a conceptual framework for understanding the relationship between digital financial infrastructure, data-driven credit assessment and MSME financing outcomes. The paper contributes to the existing literature by highlighting the importance of responsible, transparent and inclusive FinTech-based financing mechanisms for strengthening the financial sustainability and growth of MSMEs in India..