siliconindia | | February 20209household monthly income is more than Rs.60,000. She dreams of running a tailoring shop with 3-4 sewing ma-chines with a few workers. Although she has a 1-year-old bank account which was opened at a nearby Bank Mitra point, she has been denied a loan by a commercial bank. There are millions of micro-entrepreneurs like Tan-uara, who are creditworthy, have the willingness and the ability to pay but have been denied loans by banks.The Government of India and RBI has provided the much-needed impetus and policy support needed to deepen finan-cial inclusion in India. However, it is now time for PMJDY 2.0 where the focus needs to be on increas-ing the availability of credit to the informal MSME segment, mainly to the credit invisible in India and disrupt the way banks lend. The first step towards this would be to re-look at the existing process of loan approval. A dipstick amongst suburban and rural branch managers revealed that they simply reject leads where the applicant does not have a CIBIL score. High NPAs with excessive penalty have also ensured that branch managers have limited flex-ibility when it comes to sanctioning loans. The documen-tation process is also cumbersome with mandatory field visits, insistence on availability of non-perishable goods and IT returns for 3 years. A first time borrower like Tan-uara with 1 sewing machine simply does not meet the cut. The Government of India (GOI) and the RBI have been able to bring down the number of unbanked citizens from 800 million to less than 200 million and provide the much-needed impetus and policy support to deepen financial inclusion in India. However, it is now time for PMJDY 2.0 where the focus needs to be on increasing the availability of credit to the informal MSME segment, mainly to the credit invisible in India and disrupt the way banks lend. The first step towards this would be to relook at the existing stringent process of loan approval in com-mercial and development banks. A dipstick amongst sub-urban and rural branch managers revealed that they simply reject loan applications when the applicant does not have a CIBIL score. High NPAs, with excessive penalty, and discourage branch managers from sanctioning loans of ru-ral masses and small savers if they do not fit rigidly within the guidelines laid down by the bank. The documentation process is also cumbersome with mandatory field visits, insistence on availability of non-perishable goods and IT returns for 3 years. A first-time borrower like Tanuara with just 1 sewing machine simply does not meet the cut.If GoI wants to disrupt lending to MSMEs and gener-ate gainful employment, it is important for RBI to go back to the drawing board and reinvent lending. A no-frills, end to end tech-nology driven lending pro-cess with an alternate credit scoring system and customized products that takes into consid-eration the problems faced by rural India will be the first step in this direc-tion. Leveraging the existing robust and vast Bank Mitra network for distribution of micro-loans will then ensure that India is on its way to an empowered entrepreneurial, self-reliant society. To disrupt lending to MSMEs and generate gainful employment, it is important for the RBI to go back to the drawing board and reinvent lending with forward-think-ing policies. The commercial banks could make loan documentation less rigid by allowing villagers to apply for loans using just an ID proof and past savings histo-ry. This lending process can be driven by a no-frills, end-to-end technology with an alternate credit scoring system and customized products for rural India. Lever-aging the existing robust and vast Bank Mitra network for distribution of micro-loans will then ensure that In-dia is on its way to an empowered, entrepreneurial and self-reliant economy. It has demonstrated that these same demographic numbers offer a great opportunity, to build a new range of financial services, going well beyond crop credit and credit to non-farm enterprises
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