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Financial Inclusion of MSMEs – whither way?

Updated: Jun 02, 2023 04:48:52pm

Financial Inclusion of MSMEs – whither way?

New Delhi, June 2 (KNN) Financial Inclusion or spreading of formal Banking in India is one of the avowed objectives of Reserve Bank of India (RBI) and it operates a separate department to spread banking in unbanked areas. 

Financial Inclusion and Development Department  (FIDD) is also responsible for uptake of credit by priority sector, namely, Agriculture and MSME sector.


However, the recently released Annual Report of RBI for 2022-23 indicates a different trend. The report shows while the credit release to MSMEs has increased by a healthy 14% during the year, (at end December, 2022) the actual number of operating MSME accounts has decreased by about 17% during the same period.

While banks may be happy with the development, they have to deal with fewer MSME accounts with higher credit offtake, a more profitable and manageable scenario, there are surely areas of concern for both Government and RBI. If the actual number of functional Bank accounts are coming down, how the spread of Banking within India, the financial inclusion is progressing.

It may be argued that over time closure of bank accounts due to expiration or cessation in business is quite normal, but how it is capturing the growing entrepreneurship in far flung areas, to some extent due to Government programmes and opening of large number of Bank accounts in so far unbanked areas. Is it going to be a negative sum game so far expansion of Banking is concerned?

The issue of more concern is the trend of reduction in number of operational MSME bank accounts. The number is continuously decreasing for three consecutive years, as per the latest RBI Annual Report.

And as expected, the biggest drop is in the number of functional micro enterprise accounts, from 3.87 crore in 2020-21 to 2.39 crore in 2021-22 and the trend is continuing in 2022-23, although the gross credit offtake by these micro enterprises increased by about 8 – 10 % during the same period.

The purpose of raising the issue vis à vis growth in MSME credit is to draw the attention of Government and RBI to a dark area of the picture which probably shows that a large number of micro enterprises are withdrawing from the formal banking. If so, an in depth study need to be conducted by the authorities to find out where the evil is?

Author: Debashis Bandyopadhyay is a retired industrial advisor to Government of India. Views are personal.


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