SBFCs can play much bigger role in financial inclusion: Sinha

Small Business Financing Companies (SBFCs) can play a much bigger role in financial inclusion in India provided they are treated differently in terms of opportunity and regulatory environment.

For that, there is an immediate need for formation of an independent regulator to formulate framework for sustainable and better functioning of Small Business Financing Companies (SBFCs) that has been doing a wonderful work for promoting growth of small business in India, senior Bharatiya Janata Party (BJP) leader Yashwant Sinha said.

Talking on the sidelines of the conference organized by the Indian Merchant Chambers (IMC) here on Saturday, Sinha, also the former Finance Minister during the government of National Democratic Alliance (NDA) regime, said that SBFCs should be treated differently from banks.

The function was attended by the dignitaries’ inlcuding Shailesh Vaidya President, Indian Merchants’ Chamber, S Gurumurthy, Chartered Accountant & Columnist and Professor S Sriraman of Walchand Hirachand Professor of Transport Economics, among others.

With over 42 million enterprises accounting for nearly 50% of manufacturing and over half of exports, the small and medium enterprises represents perhaps the largest disaggregated business ecosystem in the world that directly employs over 100 million people.

With the share of this non-corporate sector (which accounts for 45% of India’s GDP) in bank finance only 30%, funding for small businesses continues to remain a major problem.

To address this issue, institutions specialized in small business financing need to be promoted with an appropriate policy framework. This understanding is crucial to unlocking the most massive and most mass participated growth engine of the Indian economy.

“Small businesses are like the backbone of the economy. India is the largest self employed in the world, with more than 43 million non farming enterprises; providing employment to 98 million people. SBFCs have been playing major role in promoting these businesses, by way of extending finance for their growth,” said Gurumurthy in his address.

“If inclusive growth is to be achieved, there is no better solution than to give more scope for SBFCs to grow in this country.”

There is good amount of work has been done in secondhand truck financing, financing of agricultural equipment, small kirana shops and loans for productive purposes.

“To address the difficulties faced by them, there is a need to promote with an appropriate policy framework. This understanding is crucial to unlock the most massive and most mass participated growth engine of the Indian economy,” Vaidya said in his address.

In the light of recent appointment of Nachiket More as head of inclusive Growth, the sector is looking for whole new look. There are multiple NBFCs are working in the area of inclusive growth by lending to small businesses.

SBFCs had taken more than three decades of an effort to build their infrastructure in the hinterland. This cannot be replicated by any institution or bank in very short period of time. The kind of work SBFCs are presently doing should be recognized and they should be supported through a facilitative regulatory environment to reach out to more number of small business units.

If inclusive growth is to be achieved, it would be imperative to give more leeway for SBFCs to grow, Sinha added.