Reserve Bank of India (RBI) deputy governor R Gandhi on said that the small and medium enterprises (SME) sector has been globally deprived of formal financial support and a lot needs to be done to support them. He said that banks should leverage technology to tap the sector.
Speaking on the sidelines of the FICCI banking summit here, Gandhi said that since technologies are available to assess the credit worthiness of a small scale entrepreneur, standard methods used by banks will not be sufficient in SME financing. “Banks have to refocus how to look at these opportunities from a completely new perspective using technology, standards old methods may not work,” he added.
Gandhi explained that the SME sector has been overlooked by formal financial institutions, not just in India but across the globe. He said that the SMEs reportedly account for more than half of the world’s gross domestic product (GDP) and employ almost two-third of the global workforce.
“However, they are the neglected lot world-over and as reported by the International Financial Corporation (IFC), a funding gap of more than $2 trillion exists for SMEs in the international market alone,” he said.
The deputy governor also said that fintech and market place lending cos have entered the SME segment and have become instantly successful and Gandhi said it has a potential to become game changer for small businesses.
“If only the banks can change their current reluctant attitude towards SME financing, they can be a good antidote for these risks (emanating from newer tech-enabled cos) and will display their socially relevant role, which in turn can justify their existence for the future. If you make yourself socially relevant, not just relevant in an economic sense alone, you can have hopes to exist,” he said.