Mayank Jain | Head - Marketing and Content | 1/27/2023
Hello everyone,
Welcome to the 45th edition of The Pattern, a weekly newsletter where we dissect and analyse all the rumblings from the world of finance, economy, and technology.
But first, let’s start with the one thing absolutely everyone is talking about this week. Yup, I’m talking about the mother of all comebacks - King Khan’s return with the record-shattering blockbuster Pathaan.
At the time of publishing, the film has already hit the 200 cr mark in worldwide earnings. Clearly, it’s gone beyond being a cultural phenomenon, and turned into an economic force of epic proportions. It’s shattered the ‘Bollywood is dying’ discourse and is even touted to revive the long-dead business of single-screen cinemas.
It just goes to show that a deep phenomenon - a uniting phenomenon - can turn an entire industry around - and for India’s economy, financial inclusion seems to be that magic pill that could turn fortunes and create more opportunities across the board.
That’s perhaps one of the reasons why the 2023 budget is under some serious pressure. While credit offtake has seen significant growth, it’s been led largely by personal loans which feed into the consumption economy, and often push those already at the bottom of the ladder into further debt. Meaningful financial inclusion would require growing credit offtake to the agricultural industry, which has remained at a paltry 12-13% for over a decade.
Expectations are that the 2023 budget will take remedial steps to address this, such as expanding access to the Kisan Credit Card (KCC) scheme to all farmers, and removing the principal and interest payment requirement for renewal of KCC loans.
However, it would be wrong to place all the blame for poor inclusion on inadequate policy-making. There needs to be a concerted effort on the part of every stakeholder involved - and if recent news is anything to go by, that doesn’t seem to be happening.
Despite several reminders, private banks’ participation in schemes such as the Jan Dhan Yojana has remained at less than 10%. Now, matters have come to a head, and the government has issued a warning to private players, threatening to cut off business ties if they don’t step up their financial inclusion efforts.
Sources say these banks will be closely monitored for the next six months, and any further slippage in participation will see phased cuts of government business.
If I’m being honest, it’s good to see authorities crack the whip. Financial inclusion has been on the backburner for too long, considered an unavoidable ‘social responsibility’ as opposed to a real economic issue. Perceptions will hopefully change with this move, and I hope to see large private players place this high on their agenda in the coming years. After all, there’s no point introducing state of the art tech and new digital services if even the basics don’t reach those who need it the most.
In other news (albeit in the same vein), reports suggest that the government is working on a ‘Universal Enterprise ID’ system to help small businesses strengthen their credit ratings.
The proposal may be announced in the upcoming budget, and will include a provision for ‘a Special Purpose Vehicle’, where a group of MSMEs can come together to borrow from banks under a single transaction and on-lend to its members.
The ID system was first suggested by former Sebi chairman U.K. Sinha in 2019 in the Report of the Expert Committee on Micro, Small and Medium Enterprises - the same report that also emphasised the importance of cash flow based lending to reduce the MSME credit gap.
Lots to look forward to on 1 Feb 2023!
That’s all for this edition - and as always, here are my reading recommendations:
Behind the numbers:
3%: Private banks’ contribution to the PMJDY till the middle of last year
14.6 lakh - the number of MSMEs bailed out by ECLGS
$1.3 trillion: The projected value of India’s digital lending market by 2030
2 billion: The number of people who could be pulled out of poverty if the top five percent of the world's multi-millionaires and billionaires were taxed
Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on Twitter here and follow FinBox on LinkedIn to never miss any updates.
Cheers,
Mayank