Reserve Bank of India’s (RBI) Deputy Governor Swaminathan J, highlighting the role of lead district managers (LDMs) in rural credit penetration, underscored the significance of potential-linked credit plans (PLPs) in easing credit access for self-help groups (SHGs), MSMEs, and farmers. Addressing a conference for LDMs of Maharashtra in Tadoba, Swaminathan noted that about half of SHGs are yet to be linked to formal credit, and a large proportion of small and marginal farmers still lack access to bank financing.
He added that another class of potential borrowers that has remained underserved is the MSMEs, and within that, those led by women.
“Therefore, when we adopt an empirical approach coupled with your on-ground experience for designing of a credit plan, the credit requirements of such segments can be effectively addressed through suitable Potential Linked Credit Plans as well as in block and district-level credit strategies,” Swaminathan said at the conference on November 30.
PLPs refer to financial plans or schemes designed to align credit distribution with the specific potential of different sectors, regions, or industries. They are primarily aimed at ensuring that credit is extended where it can have the most significant impact on economic growth and development.
Under PLPs, customized credit products are developed based on the needs of the target sector or region, like lower interest rates, longer repayment terms, or flexible collateral requirements.
Swaminathan said credit planning should adopt a bottom-up approach to convey the needs of the centres and then designing a plan best suited to address those.
Having said that, the primary step of data collection should be through field surveys and not be substituted by just an academic understanding, the deputy governor added.
Addressing a CII event in September this year, Michael Debabrata Patra, Deputy Governor, RBI had said that MSMEs in the country have an overall finance demand of around $1,955 billion ($1.9 trillion), of which debt-based demand is estimated at $1,544 billion ($1.5 trillion).
Half of the $1.5 trillion debt-based demand comes from borrowers who prefer financing from informal sources or from financially unviable enterprises, leaving a debt demand of $819 billion by MSMEs, of which $289 billion demand is currently fulfilled by formal credit lenders like banks while the remaining unfulfilled demand of $530 billion making up for a huge addressable market for lenders, Patra said.
