MSMEs are one of the top priority segments for lending reforms. On such outlook, the senior officer of Reserve Bank of India (RBI) has expressed his vision and action plan towards MSMEs. RBI is working on a paper on co-origination of loans which can become an important way of catering to the micro, small and medium enterprises (MSMEs).
S S Mundra, Deputy Governor of RBI said, “There had been already consultation and discussion with the banking industry because it is something where essentially banking and non-banking lender have to come together. So those consultations were already on, and it is a paper in making, not that a final view has been taken.”
Mr Mundra while inaugurating an ASSOCHAM Bankers-Borrowers Business Meeting, said, “The idea is it can be an alliance of only the people who are in the formal lending sector.” He also informed that RBI has been trying to develop a formal co-origination model whereby bank is not financing MFIs (micro finance institutions) and NBFCs (non-banking finance companies) for on-lending to ultimate borrower rather both of them join at each under-writing and loan level thereby sharing the loan amount in agreed percentage.
“This can bring strength of two sectors together. The MFIs have a better understanding of the ground level, they have the last-mile reach whereas the banks can supplement the resources. Rather than simply going with financing or on-lending, this co-origination can become an important way to cater to MSME sector,” further said Mr Mundra.
He suggested the banks that for them to continue with meaningful lending, the one segment which will be very-very important will be MSMEs. “For bankers, apart from the market dynamics, the restrictions on their ability to finance large corporates, even the growing competition in the market would make it essential to finance MSMEs and also they should move quickly, relook at their processes and try to become proactive,” said Mr Mundra.
He said that it is very important for the lenders be it bankers or the NBFC lenders to understand and appreciate the lifecycle needs of the MSMEs. “I think putting MSME in one bracket is a big misnomer, they are as different as chalk and cheese. Probably every lender has to think about micro in one particular fashion or may be small and medium there can be another common way of looking at it.” Considering that MSME units periodically get in to the cycle of difficulties owing to factors like sudden unexpected demand, he said that it is very important for the banks that products are designed to meet the lifecycle of MSMEs.