According to the world bank, India’s economic growth is estimated at 8.7 percent for the financial year 2022, which is the highest amongst all large economies. To put this in perspective, the same estimates set China at just 5.5 percent, and advanced economies of Europe, America and Japan at 4.2, 3.7 and 2.9 respectively.
Growing apace with the GDP however, is India's credit gap.The central nerve of the Indian economy, MSMEs (Micro, Small and Medium enterprises) contribute 30% to India’s GDP, 50% to exports, and employ nearly 11 crore workers; all while struggling with a credit gap of Rs. 30 lakh crores. According to the World Bank Programme appraisal document for the Raising and Accelerating MSME Performance (RAMP) programme, over 40 percent of MSMEs lack access to formal sources of finance.
And that is just one slice of the credit pie. Agriculture and allied services, businesses in tier 2, 3, 4 cities, social infrastructure projects, artisans, cottage industries, self help groups, etc all remain underserved. Those looking to avail micro-credit, housing or educational loans find their options limited, and loans hard to come by. Often, the only option left to these borrowers is to go to non-institutional lenders, making them vulnerable to unethical exploitation.
Banks vs NBFCs: Who will rise to the challenge?