When we think about financing, we may have a biased understanding of it. The first thing that comes to our mind is home financing, vehicle financing, or large business financing. However, it also plays a crucial role in growth and development of micro, small, and medium enterprises (MSMEs). These enterprises are the backbone of many economies, providing employment, fostering innovation, and contributing significantly to GDP. Therefore, ensuring access to cheap and robust financing services to MSMEs helps them thrive and expand. It is also directly related to the socio-economic development of different sections of the society. This is because the growth of MSMEs distributes wealth among classes of people who may otherwise be left out of the economic growth story.
Important of Financing for MSMEs
MSMEs are vital for economic development, particularly in developing countries. They account for a significant portion of businesses and employment worldwide. According to the World Bank, SMEs represent about 90% of businesses and more than 50% of employment globally.
According to some reports, MSMEs in India contribute around 30 per cent to the GDP of the country and employ more than 110 million people. This number is significant and shows how big the role of MSMEs in India is. Despite their importance, many MSMEs struggle to access formal credit due to high-interest rates, strict collateral requirements, and limited financial literacy. Addressing these challenges through cheaper and efficient financing can unlock the potential of MSMEs and drive socio-economic development.
Financing on the Global Stage
To understand the critical role that financing plays in socio-economic development of people, we must look at the examples from a global perspective:
- Microfinance in Bangladesh – One of the biggest innovations that happened in this region was the setting up of Grameen Bank by Nobel Laureate Muhammad Yunus in Bangladesh. The bank provided micro loans to individuals from a poor background, especially women, without the requirement of a collateral. This opened up new doors for millions of people who, before this, did not have access to any kind of credit. The money they borrowed helped them in starting their own micro businesses or taking care of emergency expenses.
- Europe’s Green Bonds – While it may not be the direct example of affordable financing, it does show how financing can bring about a change in society. The green bonds issued in Europe help the countries in the EU to finance sustainable projects, such as renewable energy, energy efficiency, and clean transportation.
- Development Finance in Africa – Many African countries struggle because of poor economic growth and political instability. Therefore, African Development Bank (AfDB) has been a crucial player in providing affordable loans and grants for infrastructural development. Through this, AfDB has supported projects like road construction, bridges, power plants, and connectivity.
Financing and Socio-Economic Development in India
Affordable financing or micro-loans can play a revolutionary role in developing any country. These are especially crucial for a country like India which has a massive consumer base and a lot of untapped potential especially in the rural areas. Here’s everything that cheap financing can achieve in India:
- Empowerment of MSMEs – As discussed above, MSMEs are extremely important for a democratic economic growth in India as they distribute wealth across the country and provide opportunities to people from different classes. When MSMEs get access to affordable credit, they invest in technological advancement, expansion of business, and creation of more jobs.
- Supporting Agri Reforms – Even today, a large section of Indians are engaged in agriculture or agriculture related employment. Ensuring affordable financing for these people means they can invest more in increasing the yield and using more sustainable ways of growing food.
- Infrastructure Development – Cheaper financing can facilitate the development of critical infrastructure, such as roads, bridges, and power plants. Public-private partnerships (PPPs) and government-backed financing schemes can attract investment and accelerate infrastructure projects, boosting economic growth.
- Improving Financial Inclusion – Traditionally, it has been observed that those who are already economically stable have easier access to credit as well. Therefore, providing cheap and affordable financing to all sections of the society creates financial inclusion as it takes away their dependence on informal modes of credit which are mostly exploitative.
Government and Private Sector Initiatives in India
The Indian government, both at the central and state level, has been working proactively to ensure access to cheap finance to those who need it the most. There are several initiatives like Pradhan Mantri Mudra Yojana (PMMY) launched in 2015. PMMY provides collateral-free loans to micro-enterprises under three categories. Other initiatives like Kisan Credit Card and Pradhan Mantri Jan Dhan Yojana are also achieving financial inclusion in different ways.
At the same time, the private sector has also been making inroads in this area as it is also a growing opportunity for them. Several new microfinance institutions, small finance banks, and fintech companies have come up in India over the last decade which are ensuring that everyone has easy access to credit.
Growth in Financing in India
The growth of digital technologies and data analytics has transformed the financing landscape in India. Data-centric approaches have enabled financial institutions to assess creditworthiness more accurately, reduce risks, and provide tailored financial products. Some key developments include Digital Lending Platforms, UPI, account aggregators, and open credit enablement network. The widespread adoption of UPI has facilitated financial inclusion and made it easier for individuals and businesses to access financial services and other indicators have made it easier for MSMEs and individuals to access affordable financial services.
Smile Foundation’s Swabhiman initiative
We adopt a comprehensive approach to women’s empowerment, integrating microfinance components to enhance financial independence among women. Key aspects include:
- Entrepreneurship Development: Swabhiman conducts workshops and training sessions to equip women with business skills, enabling them to establish and manage their own enterprises. This encourages financial self-reliance and boosts confidence.
- Financial Literacy: The initiative emphasizes financial education, teaching women effective money management, savings, and investment strategies. This knowledge is crucial for sustaining businesses and personal financial stability.
- Access to Microfinance Services: By collaborating with partners, Swabhiman facilitates women’s access to micro-loans and financial services, supporting the growth of their businesses and promoting economic empowerment.
Through these integrated efforts, Swabhiman ensures that women have the necessary financial tools and support to thrive, thereby contributing to broader socio-economic development.
Cheaper and easier access to financial services like credit can aid the socio-economic development of people. As people get access to formal credit, they use that money to leverage opportunities of making more income. In turn, they also generate more employment and help others. This also helps the economy grow as it adds to the overall GDP growth. As we move forward, it is essential to continue investing in affordable financing solutions and leveraging technology to enhance financial inclusion. By doing so, we can create a more equitable and prosperous society, where everyone has the opportunity to thrive and contribute to the nation’s development.