Page 37 - Banking Finance December 2022

ARTICLE

place in the country when lower class working population is
aspiring to grow into the middle class with the support of
institutional credit. This working population would need micro
finance for purposes of consumption, initial investment to
start small business, working capital, housing, etc.

These would also like to avail of other financial services such
as savings, remittances, micro-insurance, micro-pensions
etc. Further, FinTechs are coming up in a big way in the
country which will assist in designing suitable financial
products that cater to specific needs of the financially
excluded population and provide them activities like digital
on-boarding.
branches particularly in rural areas. But, the number of
branches newly opened by SCBs in villages with less than
5000 population declined from 693 in 2017-18 to 346 in Similarly, collaboration between MFIs and FinTechs will help in
2020-21. Even in urban areas, the number of branches has mining customer and transaction related data, cross-sell
come down steeply during the above period. Also, the products, introduce new customer-centric products & services,
number of newly opened branches in Tier 1 and Tier 2 and streamline operations. Such collaboration will facilitate in
centres with population of more than 50,000 reduced from promoting the digital literacy of customers in getting access to
2053 in 2017-18 to 1800 in 2020-21. micro finance. Further, formal and informal data are becoming
available in the micro finance in the form of digital footprints
Despite decline in the number of new branches, banks are by low income customers who also transact on e-commerce
still in a better position to promote micro lending by platforms and use the internet. These digital footprints are
depending more on digital banking and by appointing more
being used by leading banks and online lending firms to provide
and more Banking Correspondents (BCs). to render banking
loans to individuals and small enterprises.
services in villages. Regarding business activities of the micro
finance sector, loans disbursed by SCBs to SHGs during 2020-
In the same way, One more development is observed when
21 fell down by 25.2 per cent as compared to a growth of
leading e-commerce companies tie up with banks and NBFCs
33.2 per cent a year ago. In the same way, micro-credit
to offer working capital loans to their suppliers at
disbursements to JLGs and MFIs by SCBs also contracted by
competitive terms. Most of such borrowers are small
in 30 per cent during the same period. The decline in loan
entrepreneurs. Besides, the cost of credit for the micro and
disbursement by SCBs was on account the pandemic when
small enterprises will decrease significantly as lending will
there was loss of production, income and employment at
shift from collateral-based to cash flow-based. To tap these
the national level.
business opportunities, the micro finance sector needs to
Hence, RBI announced a resolution plan as a relief measure perform certain tasks.
to stressed MSMEs and small individual borrowers during the
pandemic. Such resolution plan includes rescheduling of Tasks Ahead:
payments, conversion of interest accrued into another credit The core strength of micro finance lies in understanding the
facility, revision in working capital sanctions, granting of credit needs of the customers first and then offer them
moratorium etc. It is happy to note that, there has been a
financial products. Customers of micro finance institutions
good pick in lending to micro finance sector during the post
generally have lower level of financial awareness and,
pandemic. In the coming years, there is enough potential
therefore, they are often too desperate. Consequently, ,
for micro finance in the country.
they depend on non-institutional sources of credit. In this
context, there is a felt need on the part of lending
Emerging Business Potential: institutions to strengthen their efforts to educate poor
During the recent past, a major demographic change is taking people regarding micro finance related matters.

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