Financial inclusion has grown remarkably in India on the back of the JAM (Jan-Dhan-Aadhaar-Mobile) trinity, world-class payments infrastructure and a vibrant banking-fintech ecosystem. From a low of less than 50 per cent in 2011, our bank account penetration (percentage of adults over 15 years of age with a bank account) is today estimated to be around 85 per cent. UPI clocked over 12 billion transactions last month, which is an extraordinary average of over 11 transactions per month per adult for a country as large as ours.
Having said this, we still need to do a lot more when it comes to usage of bank accounts, particularly for two constituents, i.e. non-metro India – specifically, rural/ semi-urban women – and micro small and medium enterprises (MSMEs), as these two constituents are critical for overall economic well-being of the country. In recognition of this, empowerment of women (Nari-shakti) and MSMEs has been an important part of the government’s economic policy agenda.
For example, in last year’s budget, the government announced revamping of the Credit Guarantee Scheme for MSMEs to enable additional collateral-free guaranteed credit of Rs2 lakh crore and reduction in the cost of the credit by about 1 per cent. Another highlight was the continued support for 8.1 million self-help groups (SHGs) covering over 100 million rural women. We can expect more to be done, as indeed, more is required.
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MSMEs: Continued need to bridge the credit demand-supply gap through digital lending
As of March 2023, the total loans outstanding to MSMEs by scheduled commercial banks was around Rs23 lakh crore. Yet, the unmet demand for formal credit is estimated to be significant going by the MSME contribution to GDP and global benchmarks of credit to GDP. Most of this unmet demand is from micro and small enterprises with challenges such as lack of proper documentation, inadequate credit profile, lack of proper financial statements, issues with collateral, as also lack of awareness, and socio-cultural limitations.
Further development of digital public infrastructure, and access to digital credit can bridge this gap. Various initiatives are in-flight. For example, the Udyam registration scheme, launched in 2020, which aimed at, among other things, access to credit, has reached a milestone of 30 million registered MSMEs as on December 2023. Other key initiatives such as Open Network for Digital Commerce (ONDC), Open Credit Enablement Network (OCEN) and Account Aggregator (AA) framework are expected to contribute to the same.
Continued support for the growth of digital credit products aimed at micro and small businesses is required. Sandboxes to develop robust fintech solutions that can bridge the gap need to be promoted.
Rural/ semi-urban women: Nari-shakti through digital financial services
As mentioned earlier, over 100 million rural/ semi-urban women are part of SHGs, giving them access to formal credit. The Banking Correspondent (BC) programme for women under the National Rural Livelihood Mission, is focused on extending other digital banking services to these SHGs. Under this program, training is provided by banks to group members who are called BC Sakhis or Bank Didis. Initially supported by the Government, these Bank Didis are empowered to operate as rural financial services entrepreneurs and can distribute multiple digital financial services, not just banking services but also pensions, insurance, and investments.
While significant effort has been expended by the Government in developing a supply of such trained Bank Didis across India, the key is to leverage this network. Hence, the next priority is to enhance digital transactions in this ecosystem. As Bank Didis enable more transactions, the network effects will grow, drawing more customers and transactions, thus creating a virtuous cycle.
It is an interesting time in the evolution of banking penetration in these two important constituents of our economy – MSMEs and rural/ semi-urban women. A lot has been done, which places them at the cusp of growth spurts. To realize these growth spurts, they require (and can expect) more policy interventions over the next several cycles.
The author is Partner, Banking and Capital Market Leader, Deloitte India. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.