The Supreme Court is Anti-Business
The credit gap for micro, small and medium enterprises (MSMEs) in India is estimated by World Bank to be USD 380 billion. Approximately, only 16 per cent of MSMEs in India receive formal credit while the others are under-financed or financed through informal sources.
Several measures have been taken across the financial services ecosystem to channelize more credit into the underserved parts of the society and to further bridge the credit gap.
The Government of India formulated the Micro Units Development and Refinance Agency Ltd. [MUDRA] for the development of the micro enterprises in the country. MUDRA offers technology financing, refinancing support for micro units to existing lending institutions, credit guarantee and support.
Additionally, the Small Industries Development Bank of India (SIDBI), under the jurisdiction of the Ministry of Finance, is the apex institution for financing and development of MSMEs. It offers a host of services in conjunction with financial institutions to increase access to finance, tackle information asymmetry, bridge infrastructural gaps, and address skill development needs.
In the backdrop of strong government support, financial institutions have made targeted efforts to lend to priority sector areas which include, agriculture, MSMEs, renewable energy, affordable housing, education, amongst others.
Microfinance has been an essential cog in providing credit to the underpenetrated sectors. Commercial banks, credit unions, non-governmental organizations and cooperatives offer microfinance in India.
Microfinance has been an essential cog in providing credit to the underpenetrated sectors. Commercial banks, credit unions, non-governmental organizations, and cooperatives offer microfinance in India. They lend through the Joint Liability Group model – an informal group, comprising 5-10 members who avail of loans either collectively or individually.
According to Microfinance Institutions Network (MFIN), there are ~58 million borrowers in the microfinance space in India, that owe a total of USD ~ 31.6 billion. With stricter collection norms and close oversight from the regulator, several measures are being put into place to reduce non-performing assets, while ensuring adequate disbursal of credit.
There has been a proliferation of several new entrants in the last 5-6 years to promote digital payments, financial planning, access to credit, and investments.
Furthermore, a regulatory push to increase adoption of digital payments coupled with a thriving fintech ecosystem has strengthened efforts to increase financial inclusion. There has been a proliferation of several new entrants in the last 5-6 years to promote digital payments, financial planning, access to credit, and investments.
There has been an emergence of ‘Super-apps’ that provide one-stop solutions to MSMEs and retail customers in order to provide a seamless customer experience. Payment Fintech such as Paytm, PhonePe, and YONO SBI provide a holistic offering to customers to service them across their various financial needs. Neobanks such as Open, Niyo, and RazorpayX have also seen traction, owing to the bundling of banking services with other demand-driven solutions. This has led to not only the expansion of the footprint of these Fintech, but has also been a significant contributor to furthering the uptake of financial products and services.
The Financial Services ecosystem in India has seen a favourable interplay across the regulator, development bodies, incumbent financial institutions, fintech and the beneficiaries of the services. Enabling regulations, collaborative services, a push for innovation and evolving customer preferences have shaped an environment conducive for growth of the sector. In the first half of 2021, the FinTech sector raised USD 1.89 billion1, some of which achieved unicorn status. There is significant potential for the Fintech space and the incumbent players to further address the financial needs of the population and to further drive growth in a recovering post-pandemic economy.
[1] Your Story Research
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