Credit stresses raise their head
Once again, “access to timely and adequate credit at an affordable cost”, a fundamental goal of financial inclusion, comes up on the radar. Stresses are being flagged from multiple sides. Take the microfinance sector, which has been struggling with regulatory changes, some malpractices, some aggression, some bad decisions. The industry has been collectively working towards more stability – read the interview with Jiji Mammen on the guardrails being implemented by SRO Sa-Dhan. However, the sector is in trouble. According to the latest CRIF High Mark report Microlend-March 2025, the sectors’ gross loan portfolio dropped 13.9 percent YoY, with Tamil Nadu and Karnataka standing out with the steepest declines. Read summaries in Business Standard and BusinessWorld. Now Tamil Nadu has followed Karnataka with legislation targeted at unfair money lending practices by unregulated lenders – and that has had the expected collateral damage with the regulated microfinance industry reporting delays in repayments as borrowers are not clear of the scope of the legislation. As the editorial in Hindu Business Line points out, these state laws are intended for entities that make up less than 5 percent of the market, but the entire MFI universe is impacted. There are more effective ways to identify and curb cases of malpractice rather than over-arching legislation that impacts regular business.
The Microlend report also showed a trend for lenders towards big ticket loans, away from the small value loans through the traditional Joint Liability Group model (JLG). And here, again we have voices from industry showing the way forward. Sasidhar Thumuluri has neatly explained how the JLG model can be reworked for modern Indian women, looking at a 2X2 framework of rural vs urban and cash vs digital. As with governments and regulators, industry too must learn to move with the times.
Meanwhile despite increased flow of bank credit to small businesses, SIDBI’s latest survey reports that access to finance is still seen as the top challenge for micro and medium enterprises. Women continue to face greater issues with getting credit than male entrepreneurs. Further, micro enterprises found it harder to access formal credit – so we see that around 12% of the micro enterprises surveyed had borrowed from informal sources, compared to around 3% of small and around 2% of medium enterprises. Clearly, we still need a concerted effort to resolve finance constraints for the most vulnerable segments.
In the payments space, there is a big move – the government has notified rules for a Payments Regulatory Board that will replace the current Board for Regulation and Supervision of Payment and Settlement System. The six-member board, headed by the RBI Governor will include two other RBI members and three representatives nominated by the central government. As Ajay Shah explains, this board will have its work cut out to fix the policy failures in the current payments system, and a lot will depend on how the board and its functions evolve. Anshika Kayastha has looked at the role of the government in this board. Ajinkya Kawale and Subrata Panda have looked at the possible tasks on the agenda.
There is one more very interesting positive news – the RBI’s Annual Report 2024-25 is out and the first item on the FI agenda for this year is a review of the Financial Inclusion Index. From Indicus, we are hoping for more detailed and more recent data in the public domain, especially on the subindices and parameters. This review is long overdue, see our 2021 oped in the Mint, “For meaningful financial inclusion, we need clear metrics” after the release of the FI index, making the case for granular data.
Finally, the must read pieces we highlight this month are: a) Bhawna Ahuja, Ananya Chakraborty and Anjana Rajagopalan look at the impact of heat stress on MSMEs - hitting productivity and contributing to a rise in workplace accidents, higher absenteeism, and low employee turnover, and b) Neil Borate and Aprajita Sharma wrote on the new trend of fintechs sensing a goldmine to help customers access their money stuck in the Employee Provident Fund Organisation (EPFO). This spurred a Mint editorial that pointed out the need for EPF reforms, getting PF dues should not require special services!
Do read more news and views in our curated list below. Please also follow our Indicus Centre for Financial Inclusion page on Linkedin to continue the conversation.
Tamal Bandopadhyay, Business Standard, looks at the two government insurance products -Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and the Pradhan Mantri Suraksha Bima Yojana (PMSBY).
Pratik Bhakta, Economic Times, delves into the barriers to the growth of several features like UPI Lite, wallet-based payments etc.
Raghu Mohan and Abhijit Lele, Business Standard, report on the co-lending space.
Satyam Mishra, Business World reports on NPCI's new mandate to halve response times aims to make payments smoother, speedier and more reliable.
Raghu Mohan, Business Standard, reports on the move by the Business Correspondent Resource Council (BCRC) to raise the issue of non-payment of Atal Pension Yojana (APY) renewal commission by banks to business correspondents (BC).
Government of India (GoI) Finance Ministry has released a framework on Climate Finance Taxonomy which gives detailed guidance to financial institutions on what constitutes green finance.
RBI has released revised instruction on KYC updation, which includes allowing business correspondents to update KYC and activate inoperative accounts.
Pratik Bhakta, Economic Times, reports on fintechs changing track with the slowdown in unsecured lending.
Anupreksha Jain, Business Standard, reports on banks and NBFCs moving towards loan against property for MSMEs.
Peter Zetterli and Sabaa Notta, CGAP highlight the link between climate change and financial inclusion, reporting on data that shows reduction in microfinance lending to climate vulnerable farmers and small businesses.
Anshika Kayastha, Mint, explains how the recently released RBI Digital Lending Directions 2025 will impact lenders and borrowers.
Preeti Motiani, Economic Times, looks at the impact of RBI’s proposed Gold Lending rules.
Mahua Venkatesh, The Secretariat, looks at the financial stress of MSMEs and policy moves that are needed.
Raghu Mohan, Business Standard, looks at the surge in ATM deployments, as the need for cash persists, in the age of digital transactions.
Pratik Bhakta, The Economic Times, looks at the emerging developments in the gold loan space after the RBI released draft guidelines to harmonise the regulatory framework for gold loans.