Linking credit to health protection not charity but self-development: CEA

Nageswaran called for mainstream banks to not merely be spectators to the process of formalisation of the economy but to actively absorb new proven borrowers into their core portfolios

Inclusive finance has to be embedded in a broader ecosystem of health-care insurance and social security to protect lenders as well as borrowers, Chief Economic Advisor V Anantha Nageswaran said on Tuesday while stressing that linking credit to health protection is not charity but self-development finance.

 

Speaking at the Global Inclusive Finance Summit, the CEA said one of the main reasons for people to fall behind on repayment was not laziness or irresponsibility but unexpected events such as health-related shocks.

 

“Even well-designed credit cannot do everything on its own… When illness strikes, even a growing business can stumble,” he said.

 

 

Nageswaran called for mainstream banks to not merely be spectators to the process of formalisation of economy but actively absorb the new proven borrowers into their core portfolios.

 

Citing the example of the PM Svanidhi scheme, he said even street vendors can be disciplined and can grow. “The question now is whether the formal banking system is willing to recognise the reality and offer them overdraft, insurance, and working capital,” the CEA said.

 

Stressing that a person should not remain a micro borrower forever and should have more financial options so that their business grows, Nageswaran said the most powerful financial inclusion tool is not a loan but a timely payment to these micro entrepreneurs. “Inclusive finance does not have to be a separate heroic effort… Fair contracts and prompt settlement do more for small enterprises than micro credit ever will,” he said.

 

He said credit that is not matched by rising earning capacity leads to stress and not empowerment.

 

The CEA said investors cannot demand the same returns from these institutions as they do from consumer lending or speculative fintech without distorting behaviour.

 

“True impact investing means explicitly pricing in social return and accepting lower financial return in exchange. That is not a weakness, it is the very definition of responsibility in this sector,” he said.

 

Nageswaran added that discipline of low and expected returns gives institutions the scope to focus on customer success rather than just portfolio.