December 6, 2018

Improving Credit Information Infrastructure for MSMEs – Proposals for Reform

I.Introduction India has 63 million MSMEs contributing 31.6% of the GVA and employs 111 million people across all sectors. Yet, an important barrier to these engines of growth remains lack of access to formal financing channels. A recent study released by Omidyar-BCG estimates that 40% of the MSME lending is through the informal money markets. The credit information architecture is an important inhibiting factor for the aforementioned statistic. Credit reporting addresses the important problem of asymmetric information between lenders and borrowers that may, in turn, lead to adverse selection and moral hazard issues. A robust credit information framework provides the basis for fact-based and quick credit assessment, thus facilitating access to credit to borrowers with good credit history. Accordingly, this article will take a deep-dive into the issues facing us and discuss potential solutions, especially from an MSME perspective. II. Unavailability of Data/Absence of Surrogate Data Unavailability of data, fragmented…

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