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DAILY NEWS ANALYSIS
17 May, 2020
7 Min Read
Street vendor loans an uncharted turf for big banks- Analysis
Part of: GS-III- Economy (PT-MAINS-PERSONALITY TEST)
Commercial banks have no experience extending such loans; small finance banks, MFIs with speedy disbursal could help
The recent announcement by the government to offer loans to street vendors has caught commercial banks of the country off guard. The reason is simple: hardly any such loans were extended by these banks in the past.
Issues and Imp points
Suggestions
“It should be a one-page document. The purpose of this loan is speed and the convenience at which it is delivered. If you make the borrower run around for a week, he will lose interest. Customer delight is key for the scheme to be a success”.
The other issue is with the credit guarantee part. Loans under this scheme are likely to be under the Mudra scheme. Mudra loans are guaranteed by Credit Guarantee Trust for Micro And Small Enterprises (CGTMSE). According to bankers, it is not easy to get claims for CGTMSE in case there is a default. “So many questions are asked for settling claims. They want to see the loan appraisal report. Everyone is wiser in hindsight…it is easy to say the appraisal was not proper once a loan turns non-performing,”
“Rather than leaving it to be rear ended, CGTMSE should clearly state the claim settlement criteria upfront. They should not dig it up during the time of claim. They should also specify a deadline within which a claim should be paid and if not, then interest should accrue,”
The finance ministry is expected to detail the contours of the scheme in a month.
Source: TH
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