It's The Micro Segment That Provides Contentment

RBL Bank has a very specific focus on the micro segment of the MSME sector. Anshul Swami, head, Retail, Inclusion and Rural Products, explains how lending to this segment brings in rewards:

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In MSME funding, banks in general have been less enthusiastic about the micro segment, which is the bottom end of the sector, in spite of the government emphasizing that their fund requirements should be a priority area for banks. This has been mainly because it was rather difficult to estimate their real earnings whereas in the case of matured enterprises or slightly larger enterprises, these have been filing returns or creating balance sheets or have credit history thereby making it easy for financial services institutions to assess the risk and lend to them. However, it is this very segment, that is micro, which has been a focus area for one private bank, that is, RBL Bank.

“The micro enterprises do not necessarily follow practices such as filing returns, creating cash flow, or preparing balance sheets,” says Anshul Swami, head, Retail, Inclusion and Rural Products at the bank. “These enterprises have a lot of cash transactions as well. One part is that they do have little to no credit history, and secondly, they do not have documented financials. And a significant portion of their business is dealt in cash. So, while in other smaller ticket offerings that you see in the consumer space, like personal loans and credit cards, these get sorted out because of the credit history a bank is able to access and analyze and build mathematical models to lend to. Even without bureau reports, I can lend, because there is alternate data available in their case. However, for the micro units there is no such data available. So, the ability of an institution to actually reach out to these entities which are at the bottom of the credit structure is then based on how much one can do on the ground. So, one needs a large set of people on the ground to go and meet them, go to a shop and see how much stock he has a spot assessment,” says Swami.

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