Thursday, June 20 2019
The Hindu Business Line
This will help boost lending to micro-units
In the post-monetary policy briefing on April 4, the RBI governor highlighted the uneven flow of credit to MSMEs. He pointed out that bank credit growth to micro and small industries was flat at 0.6 per cent, as was credit to medium units (growth of 0.7 per cent), against overall credit growth of 14 per cent.
It begs the question: Why is it that critical sectors such as MSME are still unable to access credit? What more should regulators do to ease credit flow to small borrowers? After all, these are the people who often find themselves falling back on informal moneylenders for their credit needs. Reducing the policy rate by 25 basis points is not enough.
Micro-enterprises, the backbone of the Indian economy, face challenges in raising credit from formal sources as they often lack documentary evidence of their creditworthiness. For them, the cost of the loan is not so significant as the availability of credit itself. However, banks face challenges in assessing the creditworthiness of micro-enterprises, which often work from homes, employ family members, and operate on a cash basis. How can a bank evaluate their credit requirement and repayment ability? Read More