Priority Sector Lenders Association of India Launched To Focus Small Businesses

New Delhi, Jan 20 (KNN) India’s non-bank lenders have come together to form a pioneering industry body to tackle the pressing issue of credit shortfalls faced by small businesses.

The Priority Sector Lenders Association of India (PSLAI) is a first-of-its-kind initiative, established under the Indian Software Product Industry Round Table (iSPIRT), a prominent non-profit think tank.

The association aims to bridge the growing financing gap, particularly for micro, small, and medium enterprises (MSMEs), by fostering collaboration and advocating for reforms in the lending sector.

Founding members of PSLAI include prominent players such as UGRO Capital, IIFL, and fintech firms like GetAdvantage. iSPIRT is also in talks with key institutions, including the Small Industries Development Bank of India (SIDBI) and large banks like State Bank of India, to join the initiative.

Sharad Sharma, co-founder of iSPIRT, highlighted that PSLAI’s primary focus will be to advocate for reforms like liberalised risk weightage on priority sector lending (PSL) portfolios, the integration of digital public infrastructure (DPI), and the promotion of fair lending practices. “The goal is to strengthen the borrower ecosystem, especially for MSMEs,” Sharma said, reported Mint.

The Reserve Bank of India (RBI) ensures that a portion of bank credit is directed towards vulnerable sectors, including agriculture, education, housing, and MSMEs, under its PSL program.

However, a significant credit gap remains, especially for MSMEs, with only 25 per cent of their financing needs currently being met. This shortfall amounted to Rs 103 trillion as of FY24.

To address this gap, iSPIRT’s strategy includes classifying PSL lenders as a new category of non-banking financial companies (NBFC-PSL) and promoting cash flow-based lending, leveraging technology like the Open Credit Enablement Network (OCEN).

The association is also seeking government support through credit guarantee schemes to enhance MSME creditworthiness.

Shachindra Nath, MD & CEO of UGRO Capital, emphasised that MSMEs have struggled with credit availability since 2021, especially after the government expanded MSME criteria. “With the right infrastructure in place, such as OCEN and e-liens, we can revolutionize MSME lending,” added Sharma.

This new push for digital infrastructure and policy reform is seen as a critical step towards unlocking the potential for MSMEs and fostering sustainable growth in the sector.

(KNN Bureau)