Hardika Shah, Founder & CEO, Kinara Capital
Co-lending
“We are racing against a tight deadline for India’s ambitious goal to become a $5 trillion economy. This is only possible by collectively addressing the over $500 million credit gap of the MSMEs given that this sector contributes to nearly 30% of India’s GDP. Less than 15% of MSME credit gap is served by formal lending today so we have a vast need. One main way to solve this is with expansive co-lending between traditional banks and NBFCs. This is the right match to potentially unlock over Rs. 50,000 crores. Union Budget 2023 is an opportunity to motivate Banks to further Priority Sector Lending (PSL) by partnering with last-mile focused fintech NBFCs and this is possible only if banks remove the rating criteria that favors larger NBFCs. Partnering with smaller and last-mile focused fintech NBFCs is the right way for banks to forward lend to PSL which benefits both the lenders and the borrowers.”
Cost of capital for NBFCs
“Union Budget must consider interest-rate deduction for last-mile NBFCs serving the Priority Sector Lending (PSL). NBFCs have to mostly rely on banks for debt capital that often comes from banks and incremental borrowings of NBFCs have already risen by 100 bps this financial year and may rise by another 50 bps. This significantly affects last-mile financial inclusion efforts and must be addressed with a regulatory cap on the cost of capital to ensure affordable last-mile lending.”
Reinstatement of CGTMSE without interest Cap
The 18% interest rate cap on the CGTMSE scheme is a restriction that limits the implementation of the scheme to only larger SMEs. According to the Economic Survey 2021-22, close to 95% of businesses registered on the Udyam portal are micro enterprises. Removing the interest rate cap will not only encourage more lenders to offer loans to these smaller MSMEs but also improve loan terms for end borrowers. Lenders will be more willing to offer longer loan terms and flexible repayment schedules to MSMEs. Overall, removing the interest rate cap on the CGTMSE scheme will provide MSMEs with more access to credit, flexibility, and increased availability of financing options.