According to a recent study in 2019, the percentage share of employment in the Indian agriculture and allied sector hinges at 43.21%, compared to 46.1% in FY 2015 – 16. The numbers in the agrarian sector have been dwindling for many years now due to a lack of sustainable credit outreach programs.
However, recent years have seen a sea of change in the Indian rural credit sector owing not only to the technological advancements but also to the inclusion of NBFCs and fintech companies.
The RBI and the Ministry of Finance expect the integration of non-banking players could significantly improve the rural sector and not just in the agrarian sense but also the advancement of SMEs in the region.
It would help realize the targets set by the Government of India for the rural sector much more effectively with increased rural exposure to SME loans and agricultural credit via NBFCs and fintech companies.
- 45% and 60% – MSME’s share of total industrial output and exports respectively.
- 3 million – Approximate employment generation by MSMEs each year.
- 100 crore – Threshold limit for NBFCs to advance credit to MSMEs as per the provisions of SARFAESI Act.
- $60 billion by 2022 – Export target for the agricultural sector per the Agricultural Sector Policy.
How can SME loan facilities improve rural economic vista?
Small and medium enterprises, the SME full form, are currently the backbone of the Indian economy, generating in abundant employment and income.
And its emergence and proliferation in the rural scene of India could effectively bring out the region from the financial crisis that has riddled it for years now. Alongside that, it would also help bring more parity in the income of urban and rural folks.
- Per capita income in terms of NVA for rural India is Rs.40,925, as per the Government of India.
- For urban India, the same stands at Rs.98,435.
Earlier, it was significantly more challenging for the rural populace to acquire funding. Currently, MSME loans are an efficient financing solution for such businesses in rural India.
Furthermore, a growing number of SMEs in rural India itself could generate employment for millions of young rural graduates and undergraduates.
These would also provide employment to dependent farmers to seek an alternative course of income and overall allow the rural sector to be more self-sufficient.
The following points discuss in more detail how contemporary Micro and Small Enterprises (SME full form) credit facilities could benefit the rural SME scene in India-
Improved gauging of borrower credibility
One of the primary impediments that plagued rural credit to businesspersons in rural India was a lack of a measure of their credibility. Rural borrowers did not have any credit history due to unavailability of credit facilities, and financial institutions would not advance loans sans a credit history.
However, with the advent of technology, financial institutions can now gauge a borrower’s credibility using proxy variables like income. Thereby, modern SME loan facilities can be more readily available to rural borrowers.
Scaled value of loans
Another significant measure that recent financial institutions, especially NBFCs, have introduced is a wide scale of the loan amount. Such business loans can range up to Rs.30 lakh and borrowers can choose any amount based on their eligibility.
Therefore, business persons can choose a small amount initially to build their credibility and also ease their repayment. And when eventually their business needs swell, they can opt for a higher amount.
Furthermore, business persons can avail a loan to finance their working capital more conveniently. A working capital loan can potentially strengthen their business through a more robust capital structure.
Collateral-free SME loan
Due to a scarcity of organised credit outreach in the rural communities for decades, non-organised lenders have filled that gap; however, at costly terms. Even in recent years, non-organised lenders have not entirely left the scene.
- As per a NAFIS report, 72% of loans availed by agricultural households are from institutional sources, while 28% accounts for non-organised sources.
One primary con of such a source is the provision of collateral to avail even small amounts of loans. Institutional lenders typically do not entertain the provision of collateral to advance a business loan. And there are several benefits of availing an unsecured business loan like minimal documentation.
Fast disbursement process
Technological advancements have allowed reputed financial institutions like Bajaj Finserv to expedite the disbursement process. It would enable rural entrepreneurs to address monetary constraints in their new business more promptly, thus, eliminating the possibility of choked operations.
Furthermore, reputed NBFCs also bring pre-approved offers on loans to simplify the process of availing a loan and further making it time-effective.
Alongside the provision of SME loans, education about how to successfully conduct business operations is also quintessential to improve the rural economic conditions. Nevertheless, the critical step is to take the initiative with small and medium enterprises that would expedite the economic progress in those regions.
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