Feb 29th, 2016: CIBIL welcomes India’s Budget 2016-17 and would like to call it ‘The Budget for the Bottom of the Pyramid’. The proposals of budgetary spending related to rural development and development of entrepreneurship at ground level may potentially give a significant push to rural economy as well as spending potential of economically weaker sectors. CIBIL believes that overall the budget proposals may make rural lending more attractive than has been the case in the past.
Trigger demand for rural credit
The overall rural development related budgetary spending is proposed at INR 87,765 crore. Specifically farming sector related spending is proposed at INR 35,984 crore, rural road related spending at INR 19,000 crore and MNREGA allocation of INR 38,500 crore would provide a significant boost to rural economy and by an extension to rural spending. Target such as doubling farmers income in five years’ time, if successful, may make this improvement a structural one. This may trigger a higher demand for rural credit.
Impact on asset quality of MFIs
Budget proposals related to farm insurance may limit the downside risk of farmers’ income and to the extent may reduce the risk profile of farm loans. Proposals targeted at economically weaker sections of the society such as subsidized cooking gas for families below poverty line(BPL) or household level insurance of INR 1 lakh attempts provide financial security. This may have a positive impact to asset quality of Micro Finance Institutions (MFIs).
Easier access to credit for MSMEs
Further the target lending under MUDRA scheme has been increased to INR 1 .8 lakh crore from the 1 lakh crore. Thus MSMEs may get easier access to credit. CIBIL believes that the focus on the bottom of the pyramid may have a strong multiplier effect and growth may potentially bubble up to reach the overall economy.