“Article 1 of our Constitution reads, ‘India that is Bharat,’ signifying that our great country can be referred to by either name. However, over the decades, India and Bharat have acquired two entirely different connotations, representing two diametrically opposite worlds in public imagination and perception.
India, for one, is seen as largely urban, with glitzy malls, modern infrastructure, and world-class educational institutes. Bharat, on the other hand, home to about 100 crore people, is perceived as its poor, underdeveloped cousin – the hinterland or the land of villages, which is yet to witness the kind of visible development seen in urban India. Despite 75 years of independence, villages in Bharat lack access to basic facilities, let alone credit.
Over the decades, various governments have announced schemes like Jan Dhan, KCC, MNERGA, etc., to address the issues plaguing our rural economy. While these schemes have provided subsidies for farmers, guaranteed employment, and income enhancement, the magnitude of the problem demands more to uplift Bharat to the level of India.
It is common knowledge that for our country to progress, Bharat must grow, and this growth requires capital. So, why is our vast network of banks and private enterprises unable to contribute to the progress of our villages, providing credit to our rural residents?
Conventional banking relies almost entirely on documented income to evaluate the repayment capacity of borrowers before providing credit. However, most small business owners in villages operate with cash transactions, lacking the necessary documents to support their income. This leaves them excluded from conventional banking for their credit needs.
It is high time that banks and other financial institutions recognize and address the genuine credit needs of rural India. They must abandon the cumbersome documentation requirements, embrace change, and open up to newer models that use surrogate means to verify income and repayment capacity. Otherwise, they are leaving Bharat, which constitutes more than 75% of our population, to fend for itself in terms of accessing credit. This substantial segment is often referred to as the ‘Missing Middle’ by our policymakers and analysts.
In the past two decades, Microfinance companies (MFIs) have made efforts by providing small-ticket size loans to micro-businesses in villages, typically ranging from 0.15 Lakh to 1 Lakh. These loans mostly rely on the JLG (Joint Liability Group) Model pioneered by the great Nobel laureate Dr. Yunus of Grameen Bank, Bangladesh. His model has been successfully deployed in over 64 countries worldwide.
However, once borrowers reach the threshold limit of 1 Lakh through successive loans, they suddenly have no institutional support to raise additional credit. Consequently, they are forced to turn to unscrupulous moneylenders for their credit needs.
Over the years, a few NBFCs like Sarvjan have taken this problem head-on. These companies have employed native field-based intelligence to create sustainable business models while addressing the credit needs of this ‘Missing Middle.’
Sarvjan, for example, provides loans ranging from 1 Lac to 10 Lacs to rural micro-entrepreneurs, with women often being the first borrowers. The company has developed an innovative underwriting system that does not require income documents from borrowers. Creditworthiness is assessed through multiple customer meetings, interviews, and various other surrogate means.
Our villages are brimming with talent, and the availability of credit through regulated entities like Sarvjan provides a much-needed alternative to the 100 Crore people who would otherwise turn to local moneylenders and their associates for growth capital. In just a few years, the company has established a presence in over 500 villages in Rajasthan, providing income enhancement loans to over 1400 households. These loans are estimated to increase monthly incomes by about 30%, leading to more disposable income and fostering both savings and financial security.
Another critical aspect of rural credit is insurance. Many households rely on a single breadwinner, and if their earnings cease for any reason, the family is left vulnerable, often slipping back into poverty. While insurance penetration has grown considerably in urban centers, rural areas remain underpenetrated due to the lack of rural-centric products and last-mile distribution. Insurance companies need to bridge this gap in both health and life insurance to cater to the needs of our village residents.
Urban progress alone is insufficient for our country to achieve its immediate goal of becoming a 5 trillion-dollar economy, making it the third-largest economy globally. To achieve this, large businesses and investors must shift their focus from the ‘low-hanging fruits’ or ‘urban rich’ and start investing in understanding the rural ecosystem.
It has been observed that, in many cases, the availability of viable and wholesome income in villages has led to reverse migration, with people choosing to return to their villages to work instead of remaining in overcrowded and polluted cities. This is a healthy trend that represents one of the ways to bridge the urban-rural development gap, albeit at a gradual pace.
Solving the credit problem of rural India is not an easy task. However, proven business models like the one developed by Sarvjan exist and deliver comprehensive growth, income enhancement, and employment opportunities. Deep tech and AI, combined with financial institutions, have the power and capability to achieve in the next 5-10 years what we have not been able to achieve in the last 75 years.”
