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Keep the financial chain intact for India’s “Next Half Billion”

4th May 2020
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Photo credit: Economic Times

By Shilpa Kumar

India has over the last decade developed a nascent funding model for the aspiring 100 million households who are India’s economic backbone. This demographic is both the most needy and the most vulnerable. And equally true is the fact that enabling their access to capital and funding can be one of the most catalytic economic drivers for India.

Developing a model of financing that is formal, regulated and sustainable for these households has therefore been a social and economic imperative.

On the one hand, it starkly brings out the difference between regulated and unregulated lending.

On March 27, the Reserve Bank of India responded swiftly to the pandemic and its expected economic pain. It mandated lenders to give a 3-month moratorium to all primary borrowers. Banks, NBFCHFCs worked at breakneck speed to ensure this was done. This was, in a way, a big win for formal finance as any borrower in India got this relief equally and simultaneously.

Contrast this with a person who would have availed of finance from informal channels/ local moneylenders. RBI’s mandated relief would not extend to them. This is underlined by anecdotes that are coming up during the pandemic such as PDS cards being taken as “security” by some loan sharks.

Read the full op-ed here.