Mumbai, Feb 12 (KNN) Batting for the micro, small and medium enterprises (MSMEs), RBI Governor Raghuram Rajan today said "MSMEs get squeezed all the time by their large buyers, who pay after long delays."
In his keynote address at the NASSCOM India Leadership Forum here today, Rajan said the business in its entirety would be better off “if the MSME could sell its claim on the large buyer in the market”.
“The MSME would get its money quickly, while the market would get a claim on the better rated large buyer instead of holding a claim on the MSME. The large buyer could get a better price for his purchases. All this requires setting up a Trade-receivables Exchange, which the RBI has been discussing with market participants. Once again, the key is to reduce transaction costs by automating almost every aspect of the transaction so that even the smallest MSMEs can benefit,” Rajan said.
The RBI Governor further added, “One of the difficulties the poor and small businesses have in accessing credit is the lack of information about them, both up front as they are being evaluated for credit, and after lending where the lender has to monitor them.
“If savings and payments products are sold widely, and information, including payments to mobile companies, utility companies, as well as the government, collected, then the excluded can build information records that will help them access credit. If, in addition, negative information on defaults is shared in a fair and responsible way through the financial network, every individual borrower will have something at stake -- their credit history – which can serve to encourage timely repayment. This, in turn, can improve the willingness of banks to lend.”
Narrating the experiences of micro entrepreneurs, the RBI Governor said that they shy away from the regular banking system because of difficult KYC (Know Your Customer) norms etc.
Further, Rajan said, “Last week, I met with some members of Ela Bhatt’s Self-Employed Women’s Association. In a room full of poor but confident women entrepreneurs, I asked how many borrowed from moneylenders before they came to SEWA. About half the women raised their hands. When asked how many thought of approaching a regular bank before they came to SEWA’s cooperative bank, not one raised her hand. Interestingly, many of them said that the loan from SEWA freed them from the moneylender’s high interest rate, which gave them enough to service SEWA’s loan fully even while focusing on other productive activities.”
“I have heard this from other micro-entrepreneurs – the highest return initial investment is often to free oneself of the clutches of the moneylender. Despite this high return from the delivery of credit to the poor, and despite much of our financial inclusion efforts being focused on credit, we still reach too few of the target population. So there is much more to be achieved,” he added.