Artificial Intelligence is reshaping industries across the world. For small and medium enterprises in South Asia, the question is no longer whether AI will matter but how it will transform the way these businesses operate.
SMEs in India and Sri Lanka stand at an important juncture. They face challenges of limited budgets, lean teams, and rising competition. Yet they also hold the potential to become more agile and competitive by adopting AI in ways that are practical, affordable, and aligned with local realities.
Why AI matters for SMEs
SMEs are the backbone of South Asia’s economies. India is home to more than 73 million micro, small and medium enterprises (MSMEs) that contribute nearly a third of its GDP. In Sri Lanka, an estimated 1.3 million MSMEs are active, representing more than 75 per cent of all businesses. They account for around 45 per cent of employment and contribute 52 per cent to GDP. These enterprises are the backbone of the economy, supporting employment, innovation, and regional development.
Despite this importance, SMEs in Sri Lanka and India often operate with structural bottlenecks in finance, operations, and market access. Many, particularly in Sri Lanka, function informally, which limits access to credit and technology. AI presents an opportunity to change this landscape by offering a set of adaptable tools that address these constraints directly.
The most important shift is accessibility. In the past, advanced technologies required heavy investments and were available only to large corporations. Today, cloud platforms, no-code applications, and software-as-a-service make AI affordable even for smaller firms.
The future of AI for SMEs will not rely on building expensive in-house systems. Instead, it will depend on adopting lightweight, cost-effective solutions that solve specific business problems.
Where AI will shape the future of SMEs
- Customer engagement and sales
In the coming years, AI-driven personalisation will be essential. A retailer in Colombo could recommend products based on past purchases, while a travel agency in Chennai could create tailored itineraries through an AI assistant. Vernacular AI will grow in importance, given South Asia’s vast linguistic diversity.
Systems that understand Sinhala, Tamil, Hindi, or Bengali will enable businesses to connect with customers more effectively. Predictive analytics will also help businesses forecast demand, reduce stock imbalances, and capture sales opportunities.
- Financial management and access to credit
Cash flow is one of the toughest challenges for SMEs. AI will help by predicting payment delays, assisting with working capital planning, and automating bookkeeping. Another important use is AI-driven credit scoring.
Many SMEs, particularly those in informal sectors, lack long credit histories. AI can help financial institutions evaluate them more accurately, enabling faster and fairer access to loans. In the future, SME owners will rely on real-time dashboards that replace guesswork with data-driven insights.
- AI for fintech in the region
Fintech is emerging as one of the most powerful enablers of SME growth in South Asia. AI is at the core of this transformation.
AI-driven credit risk models allow lenders to extend financing to small businesses that were previously excluded due to lack of formal credit history. By analysing transaction data, utility payments, and digital footprints, AI expands access to working capital.
AI-powered fraud detection systems are also strengthening trust in digital payments. With the rapid rise of mobile wallets and online transactions in both India and Sri Lanka, SMEs can now adopt digital payment platforms with greater confidence.
Customer-facing AI chatbots in fintech apps are improving financial literacy by explaining loan terms, repayment schedules, and investment options in local languages. This democratises access to financial services and builds trust among first-time users.
For SMEs, the fusion of fintech and AI will reduce dependency on informal lenders, lower transaction risks, and provide the tools to integrate into formal financial ecosystems. Over time, this will boost both resilience and competitiveness.
- Operations and supply chains
Volatility in supply chains has become a constant reality. AI can support SMEs by anticipating disruptions, forecasting material needs, and identifying alternative suppliers. Route optimisation will lower logistics costs, while computer vision will improve quality control in production.
For Sri Lankan apparel exporters or Indian auto-component suppliers, these capabilities will be critical for maintaining competitiveness in international markets.
- Talent and workforce productivity
AI will not eliminate SME jobs but will reshape the way employees work. Routine tasks such as data entry, invoice processing, and report drafting will be automated. This will free employees to focus on relationship management, product design, and strategy. SMEs that invest in up-skilling will be better positioned to attract and retain talent. In the future, even small teams will achieve the efficiency of much larger organisations.
- Sustainability and ESG compliance
Sustainability is moving from optional to mandatory in global trade. AI will help SMEs track energy use, improve waste management, and generate automated sustainability reports. This will simplify compliance for export-oriented SMEs and open new opportunities with global buyers who demand responsible sourcing.
Challenges SMEs must overcome
The opportunities are significant, but the path forward is not without obstacles.
- The first challenge is data readiness. Most SMEs lack clean and structured data, which limits the effectiveness of AI tools. Data collection and standardisation will be the foundation of successful adoption.
- The second challenge is cultural resistance. Many business owners rely on instincts built over decades. Building trust in AI will require patience and small, visible successes.
- The third challenge is infrastructure. In rural areas, poor connectivity and unstable power supply make cloud-based AI tools difficult to use. Offline-first designs will be necessary.
- The fourth challenge is cost. Even as AI becomes more affordable, SMEs will hesitate unless the return on investment is clear. Flexible pricing models such as pay-per-use AI will be crucial.
- The fifth challenge is the skills gap. Many SME employees have little exposure to AI systems. Up-skilling programs delivered through industry associations, government initiatives, and training providers will be vital.
Also Read: AI for SMEs in Southeast Asia: From everyday experiments to emerging frontiers
The role of policy and ecosystem support
For SMEs to benefit fully, supportive policies and ecosystems are essential. India’s National AI Mission emphasises inclusion and SME-focused applications, while Sri Lanka has introduced programs promoting smart manufacturing. Both countries recognise that SMEs must be AI-ready to remain globally competitive.
In Sri Lanka, the SME sector has struggled in the context of recent economic challenges. Surviving amidst a financial crisis has made resilience a priority. Policymakers are now considering future directions that combine access to finance, digitalisation, and AI adoption to strengthen the sector.
Industry associations, chambers of commerce, and accelerators will also be critical. Their role is to demystify AI, offer training, and encourage pilot projects that allow SMEs to adopt AI at a manageable scale.
A practical path for SME leaders
For SME leaders in South Asia, the path forward is best taken step by step.
The first step is to identify a clear business problem. This could be customer service delays, cash flow challenges, or high defect rates in production.
The second step is to test affordable AI tools that address that specific issue. A chatbot, a predictive sales dashboard, or an automated invoicing system can provide immediate value.
The third step is to iterate and scale. If the pilot succeeds, resources can be directed toward expanding AI use. If it does not, lessons can be applied to the next experiment. Flexibility is the greatest advantage that SMEs hold over larger competitors.
Also Read: Balancing growth and security: How AI is transforming business and cyber threats
A vision for 2030
By 2030, AI will be deeply embedded in the daily operations of SMEs across South Asia. Local retailers will use voice assistants in regional languages to serve customers. Exporters will employ AI-powered quality checks to meet international standards. Farmers’ cooperatives will benefit from AI-driven climate forecasts to protect yields.
Professional firms will deliver services faster and more efficiently with AI copilots. Fintech platforms will integrate seamlessly with AI systems to offer SMEs tailored credit, secure payments, and real-time financial insights.
This transformation will not involve SMEs imitating large corporations. It will involve SMEs using AI to compete on their own terms, staying lean, responsive, and resilient.
Conclusion
The future of AI for SMEs in South Asia is not about dramatic overnight change. It is about small, focused applications that address everyday challenges. AI will steadily improve customer interactions, enhance financial access, lower costs, and unlock new avenues for growth.
For SMEs willing to experiment, the next decade presents extraordinary opportunities. The lesson is clear. Do not wait for the perfect solution. Start with one problem, adopt a practical tool, and learn from the experience. In this way, AI will become not just a trend but an everyday partner in the success of South Asia’s SMEs.
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Artificial Intelligence is reshaping industries across the world. For small and medium enterprises in South Asia, the question is no longer whether AI will matter but how it will transform the way these businesses operate. SMEs in India and Sri Lanka stand at an important juncture. They face challenges of limited budgets, lean teams, and
The post The future of AI for SMEs in South Asia appeared first on e27. Artificial Intelligence, Community, Enterprise Solution & CRM, SME e27