I gave my three-year-old cousin a pen and asked her to write the alphabet ‘A’ without ever teaching her what an ‘A’ looks like. Instead, she started scribbling circles on the notebook and playing. The pencil and the notebook were toys for her. Now take this analogy and apply this to the Indian population. Say, the Government of India launches a loan scheme for underprivileged people who need access to credit for setting up an enterprise. The poor individual may not have a bank account or the know-how needed to fill a loan application. In such a case, they will be running to banks without any chance of securing a loan, much like my three-year-old cousin scribbling circles without any chance of figuring out the alphabet ‘A’. What good is the scheme when people don’t know how to avail it?
Through my association with LetsEndorse, I was made acutely aware of these gaps in the ecosystem. Through its flagship intervention Project Udyamita in collaboration with Small Industries Development Bank of India (SIDBI), LetsEndorse has stepped in to enable and guide people from Low-Income Households (LIHs) through the confusing maze of loan applications, certifications, and documentation.
Part of my job at LetsEndorse is to analyze popular loan schemes (PMEGP, Mudra loan, SVANidhi loan) and document the hurdles in the process of availing a loan. This entails filling dummy forms to check for difficulties, interacting with bankers, and interacting with the team of LetsEndorse to document every problem with the objective of understanding the challenges and recommending solutions that LetsEndorse can add to its program to make the process easier for applicants.
The discoveries are innumerable and eye-opening. To give you an idea of the same, I am publishing this blog. While the challenges are very complex and can be talked about in great length, I will divide them into 3 parts for the sake of the brevity of this article
Availability
Don’t get me wrong; the forms are available in abundance but not in the right manner. Let me explain.
The easiest way to get the form is to go to your nearby branch and get the form there. However, in this digital age where 634 million Indians are online, the internet has penetrated even the rural areas. Hence, it would be fair to expect the forms to be available online and the good thing is that they are! The caveat is that they are only available in English, or Hindi if one is lucky. English is a language that is predominantly spoken and read by the elite thereby making these forms inaccessible for the intended beneficiaries. Many schemes claim to have an up and running website with online forms but it is of no use to a person who only reads and writes in his/her local language. For schemes that are designed to uplift groups that have been disadvantaged, easy availability is a key to their success. Steps need to be taken to provide online forms in vernacular languages.
Apart from that, websites like udyamimitra.com suffer from technical bugs where the OTP does not come through when trying to log back in again. It only comes once during registration. However, if you decide to log out and try to log back in again, the OTP will not come through
Accessibility
After getting the form, the next step is to understand it. These schemes are primarily targeted towards people at the grassroots level looking to start a business of their own or scale up their already existing business. However, multiple barriers exist at different levels.
Technical Terms that don’t make sense to the average person:
Many don’t understand the technical terms in the form as they don’t have access to the financial know-hows. In my conversation with the bankers, I asked them whether banks provided any assistance with filling the form. Nobody conveyed an outright ‘no’ but they talked in a grey area conveying that people will have to arrange that themselves and banks are only there to assess the form not fill it; which is right at some level. But then the question remains, where do these people go?
They turn to unscrupulous middlemen:
This point follows up on the previous one. To cover up for one’s lack of access to financial knowledge, people go looking for middlemen. More often than not, here they are scammed to pay unreasonable prices to get their form filled. This phenomenon is more common in rural areas, as claimed by a banker from a rural area in Bihar. The banker even went so far as to say that middlemen are responsible for promoting wrong behavior among borrowers. Allegedly middlemen preach to the borrowers that they don’t even have to pay back their loans proclaiming that the weak banking infrastructure will not catch the defaulters.
Caution against defaulters:
According to official guidelines, loans up to Rs. 10 lakhs are collateral-free. But in reality, if you want a loan above 1.5 lakhs the banks will never allot it without collateral. Their reasoning is that if they don’t do it, there is a high risk of the loan turning bad which has happened a lot in the past. Bankers claim that many borrowers do not have a good record to guarantee the payment of loans which becomes a major blockade in allocating them the loan. This is a good time to transition to the next part, which is ‘acknowledgment.’
Acknowledgment
While there are endless loopholes in the banking system and government schemes don’t function properly, a lot can be attributed to the borrowers as well. It is high time it is acknowledged. It is not a secret that many people are lazy, they just want money but are not ready to toil for it. And this information comes from people on the field who are interacting with borrowers on a daily basis. Money does not come easy. One needs to be informed about loan schemes and be ready to answer questions about their own project before approaching the bank for a loan. This will not only leave a good impression on the banker but increase one’s chances of getting a loan. Many people bribe their way into the loan interview but are caught during pre-sanction visits by the bank. Vice versa also stands true, many bankers do not function in the right spirit and trouble the borrower by making wrong demands. The borrower needs to be informed of his/her rights and at the same time operate in the right spirit. Do not wrong the bank or be wronged. Report the wrongs and if need be, take help from NGOs and other social enterprises to help you out.
When these three wheels work in tandem, the schemes will reach the right people and generate favorable results. This is what LetsEndorse is striving for. They help the borrower throughout the process of availing a loan, they help people prepare a robust business plan, train them on how to speak with bankers, raise their complaints to higher authorities, and in the end make it easier to set up a business. LetsEndorse has a dense network to promote their initiative Project Udyamita to pull at least 10,000 families out of the vicious cycle of poverty by fostering self-employment at the base of the pyramid and boosting hyperlocal livelihood creation. With support from SIDBI (Small Industries Development Bank of India), they have begun working in 100 districts across 5 states of India (viz. Uttar Pradesh, Bihar, Jharkhand, Odisha, and Telangana) under the banner of ‘Mission Swavalamban’ to identify, nurture and enable youth, women, and men to start and grow their nano/micro-enterprise from where they are based while serving local communities and boosting local economies.
The people that successfully come through these loan schemes, join forces with 65 million already-existing MSMEs (micro, small and medium enterprises) in India and employ more than 110 million people thereby contributing to nearly 30% of India’s GDP. Acknowledging its importance, the Union Minister of MSMEs promised to increase the MSME contribution to GDP to 50%. However, this sector suffers from nearly Rs. 25 trillion in credit gap. The empowerment of this sector will be a major trump card towards a positive economic turnaround and LetsEndorse hopes to be at the helm when it happens.
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A note from the writer:
I am Kumar Himanshu, a student of the Integrated Programme in Management at IIM Indore and a summer intern at LetsEndorse. At LetsEndorse, I had the unique privilege to learn about the loan procedure for small businesses and its shortcomings.
My current field of interest is finance. I like to learn about cryptocurrency and stock markets.