INDIA became a republic on January 26, 1950 when “we the people” adopted our Constitution. Article 1 of the Constitution reads, “India that is Bharat”, meaning that our great country shall be known by any of these names.
Over the decades, India and Bharat have come to acquire two completely different meanings 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, is its poor underdeveloped cousin, the hinterland or the land of the villages which is yet to see the kind of visible development seen in urban India.
Bharat must grow
The bright spot is that there is an agreement among all policymakers that for our country to progress Bharat has to grow and that growth requires capital.
Why then is our large network of banks or private enterprise not able to provide credit to our village folk? Conventional banking system is designed to rely on documented income to examine the creditworthiness of any borrower. This means that generally no loan is granted to a customer if he or she does not have any income documents.
This is a classic example of ‘lazy lending’ where financial institutions bend over backwards to lend more and more to people/institutions who already have a plethora of options to borrow. Thus, we see that large structured corporates are able to borrow even higher sums while the poor underserved village folks do not have any avenues to meet their credit needs.
Myth torn to shreds
The myth that template, balance sheet-based income assessment is safe and the best way to acquire borrowers, as it conclusively proves their repayment capacity, has been torn to shreds in the recent past. The plethora of cases on account of default by these large corporate houses under the insolvency and bankruptcy code are there for all to see.
Why is it that despite defaults running into lakhs of crores by large companies, banks are still reluctant to provide loans to people who need them the most?
An overwhelming majority of small business owners in villages run cash businesses and hence do not have documents to support their income. By virtue of this, a large chunk of countrymen residing in villages remain outside the purview of conventional banking system for their credit needs.
However, in a country where only 6.6 crore of 125 crore + population files income tax returns and only 1.4 crore businesses have GST registrations, relying on ITRs or GST returns to determine credit-worthiness is missing the trees for the woods.
The ‘Missing Middle’
It is because of this policy fixation of relying on income documents to provide loans that an overwhelming majority of our population, often referred to as the ‘Missing Middle’, is left to fend for itself to avail credit and has little or no institutional support.
What can be done to provide easy credit to about 100 crore countrymen who live and work in villages? Over the years, a few new-age non-banking financial companies (NBFCs) like Sarvjan India Fintech, founded by Samir Malik, a Law graduate, have taken this problem head-on. A veteran in the banking and financial services sector, having been associated with GE Capital, ICICI Pru and HDFC Life, Malik was also Co-founder of Aviom India Housing Finance, a company focused on providing home loans to lowincome segment.
Malik’s company Sarvjan uses surrogates with field-based native intelligence to access repayment capacity of a borrower who does have not any income documents to prove his/her earnings. Such companies have proven that a sustainable business model can be built while addressing the credit needs of this ‘Missing Middle’.
Underwriting system
Sarvjan recognises the problem of undocumented income and has developed an underwriting system which does not require customers to provide any kind of income document. The income assessment is done via multiple customer meetings or interviews and various other surrogate means.
This model opens the door for easy credit to more than 100 crore people who neither pay GST nor file income tax.
