A new portal under Bhuvan “Yuktdhara” has been released to facilitate planning of new MGNREGA assets using Remote Sensing and GIS based information.
Bhuvan Yuktdhara Portal
Yuktdhara is a geospatial planning portal meant for facilitating Gram Panchayat level planning of MGNREGA activities across India.
Portal integrates a wide variety of spatial information contents to enable a holistic approach towards planning using open-source GIS tool.
Subsequent to pan Indian initiative of geo-tagging assets created under Mahatma Gandhi NREGA, harnessing the strength of GIS for identifying upcoming activities and their locations was a natural corollary.
Features of the portal
The current level of integration under Yuktdhara, as part of Bhuvan, incorporates multi-temporal IRS satellite data of better than 3M detail in natural color, digital terrain, thematic layers as wed as locations of MGNREGA works and watershed management assets.
The interface currently has a Gram Panchayat-specific logo to address planning as well as approval mechanisms intended to ensure the evaluation and acceptance of proposed activities.
This will be enhanced for other levels of users gradually.
Access for other Gram Panchayat will be facilitated at the earliest, by addressing the case multiple logins created for geotagging and moderation.
The MGNREGA stands for Mahatma Gandhi National Rural Employment Guarantee Act of 2005.
This is labour law and social security measure that aims to guarantee the ‘Right to Work’.
The act was first proposed in 1991 by P.V. Narasimha Rao.
The objectives of the MGNREGA are:
To enhance the livelihood security of the rural poor by generating wage employment opportunities.
To create a rural asset base that would enhance productive ways of employment, augment and sustain a rural household income.
Features of the program
MGNREGA is unique in not only ensuring at least 100 days of employment to the willing unskilled workers, but also in ensuring an enforceable commitment on the implementing machinery i.e., the State Governments, and providing a bargaining power to the labourers.
The failure of provision for employment within 15 days of the receipt of job application from a prospective household will result in the payment of unemployment allowance to the job seekers.
Employment is to be provided within 5 km of an applicant’s residence, and minimum wages are to be paid.
Thus, employment under MGNREGA is a legal entitlement.
The Prime Minister has paid tributes to Sree Narayana Guru on his Jayanti.
Sree Narayana Guru (1856-1928)
Narayana Guru was a philosopher, spiritual leader and social reformer in India.
He led a reform movement against the injustice in the caste-ridden society of Kerala in order to promote spiritual enlightenment and social equality.
His legacy:
Temple Entry
He was in the forefront of the movement for universal temple entry and against the societal ills like the social discrimination of untouchables.
He gave the famous slogan “One Caste, One Religion, One God for All”.
In 1888, he built a temple dedicated to Lord Shiva at Aruvippuram which was against the caste-based restrictions of the time.
In one temple he consecrated at Kalavancode, he kept mirrors instead of idols. This symbolised his message that the divine was within each individual.
Untouchability
The social protest of Vaikom Satyagraha (1924-25) was an agitation by the lower caste against untouchability in Hindu society of Travancore.
He taught equality but felt the inequalities should not be exploited to carry out conversions and therefore generate strife in society.
Philosophy
Sree Narayana Guru became one of the greatest proponents and re-evaluators of Advaita Vedanta, the principle of non-duality put forward by Adi Shankara.
Answer this PYQ:
Q.Which one of the following pairs does not form part of the six systems of Indian Philosophy?
(a) Mimamsa and Vedanta
(b) Nyaya and Vaisheshika
(c) Lokayata and Kapalika
(d) Sankhya and Yoga
[wpdiscuz-feedback id=”k8wz5imcou” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]
The Swarnim Vijay Varsh Victory Flame was taken to Indira Point, the southernmost tip of the country on August 22, 2021, as part of its voyage to the Nicobar Group of Islands.
Indira Point
Indira Point is the southernmost point of Indian Territory.
It is a village in the Nicobar district at Great Nicobar Island of Andaman and Nicobar Islands in India.
Rondo Island, Indonesia’s northernmost island in Sabang district of Aceh province of Sumatra, lies 163 km south of Little Andaman Island and 145 km or 80 nautical miles from Indira point.
The point was formerly known as Pygmalion Point and Parsons Point. It was renamed in honour of Indira Gandhi during mid-1980s.
Galathea National Park and Lighthouse are the major attractions here.
India and Indonesia are upgrading the deep sea port Sabang under the strategic military and economic collaboration to protect the channel between Great Nicobar Island and Rondo Island which is 612 km or 330 nautical miles from Indira Point.
What is Swarnim Vijay Varsh?
It marks the 50th anniversary of the 1971 India-Pakistan war.
Vijay Diwas is celebrated every year on December 16 to mark India`s triumph in liberating Bangladesh.
The journey of the Victory Flame is taken from north to south corners of India.
The recent Monsoon Session of Parliament is proof that the speed of passing laws trumps their rigorous scrutiny in our legislative process.
Issues with lawmaking process in India
1) Avoiding pre-legislative scrutiny
In our parliamentary system, a majority of laws originate from the government.
Each ministry decides the path its legislative proposals will take from ideation to enactment.
For example, last year, the Shipping Ministry requested public feedback on the two bills — Marine Aids and Inland Vessels.
This mechanism enables the strengthening of the legal proposal through stakeholder inputs before being brought to Parliament.
However, ministries expedite their bills by not putting them through a similar pre-legislative scrutiny process.
2) Misuse of Ordinance route
Over the years, successive governments have exploited the spirit of this constitutional provision.
Governments have promulgated an ordinance a few days before a parliamentary session, cut a session short to issue one, and pushed a law that is not urgent through the ordinance route.
But the executive sometimes fails to follow through on the legislative urgency.
Bringing in law through the ordinance route also bypasses parliamentary scrutiny.
But parliamentary committees rarely scrutinise bills to replace ordinances because this may take time and defeat the issuing of the ordinance.
Over the last few years, bills like GST, Consumer Protection, Insolvency and Bankruptcy, Labour Codes, Surrogacy, and DNA Technology have benefited from parliamentary committees’ scrutiny.
Their closed-door technical deliberations, inputs from ministry officials, subject-matter experts, and ordinary citizens have strengthened government bills.
3) Delay in rule framing
Unnecessary urgency in getting laws passed by Parliament does not result in their immediate implementation.
For the law to work on the ground, the government is supposed to frame rules.
Last year the Cabinet Secretary twice requested the personal intervention of secretaries heading the Union ministries to frame regulations for bringing into force the laws made by Parliament.
Before the Monsoon Session, he wrote a follow-up letter on similar lines to his colleagues.
Implication of fast-tracking the law-making
Difficulty in achieving desired outcomes: Hurriedly-made and inadequately-scrutinised laws hardly ever achieve their desired outcomes.
Wastage of time of legislature: Enacting statutes without proper scrutiny also wastes the legislature’s time when the government approaches Parliament to amend such laws.
Loss of opportunity: But the unmeasurable cost of a poorly-made law is in the loss of opportunity to an entire nation that has to comply with it.
Way forward
The government must ensure that it identifies the gaps in our legal system proactively.
All its bills should go through pre-legislative scrutiny before being brought to Parliament.
The legislature, on its part, should conduct in-depth scrutiny of government bills.
Mandatory scrutiny of bills by parliamentary committees should become the rule and not the exception.
Conclusion
India is in urgent need of course correction in its legislating process. What we need is a robust law-making process.
GS-1 Salient features of world’s physical geography
GS-2 Structure, Organization and Functioning of the Executive and the Judiciary—Ministries and Departments of the Government; Pressure Groups and Formal/Informal Associations and their Role in the Polity.
GS-3 Inclusive Growth and issues arising from it.
GS-4 Probity in Governance: Concept of public service; Philosophical basis of governance and probity.
HOW TO ATTEMPT ANSWERS IN DAILY ANSWER WRITING ENHANCEMENT(AWE)?
Daily 4 questions from General studies 1, 2, 3, and 4 will be provided to you.
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Upload the scanned answer in the comment section of the same question.
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The Union Finance Minister has launched the National Monetization Pipeline for the brownfield infrastructure assets.
What is Asset Monetization?
Asset Monetization involves the creation of new sources of revenue by unlocking of the value of hitherto unutilized or underutilized public assets.
Internationally, it is recognized that public assets are a significant resource for all economies.
Many public sector assets are sub-optimally utilized and could be appropriately monetized to create greater financial leverage and value for the companies and of the equity that the government has invested in them.
This helps in the accurate estimation of public assets which would help in the better financial management of government/public resources over time.
National Monetization Pipeline (NMP)
The NMP comprises a four-year pipeline of the Central Government’s brownfield infrastructure assets.
It will serve as a medium-term roadmap for the Asset Monetization initiative of the government, apart from providing visibility for the investors.
Incidentally, the 2021-22 Union Budget, laid a lot of emphasis on Asset Monetization as a means to raise innovative and alternative financing for infrastructure.
It has to be noted that the government views asset monetization as a strategy for the augmentation and maintenance of infrastructure, and not just a funding mechanism.
What is the plan?
NMP is envisaged to serve as a medium-term roadmap for identifying potential monetization-ready projects, across various infrastructure sectors.
It estimates aggregate monetization potential of Rs 6.0 lakh crores through core assets of the Central Government, over a four-year period, from FY 2022 to FY 2025.
Objectives of the program
NMP aims for universal access to high-quality and affordable infrastructure to the common citizen of India.
Asset monetization, based on the philosophy of Creation through Monetization, is aimed at tapping private sector investment for new infrastructure creation.
This is necessary for creating employment opportunities, thereby enabling high economic growth and seamlessly integrating the rural and semi-urban areas for overall public welfare.
The strategic objective of the programme is to unlock the value of investments in brownfield public sector assets by tapping institutional and long-term patient capital.
Framework
The framework for core asset monetization has three key imperatives:
The pipeline has been prepared based on inputs and consultations from respective line ministries and departments, along with the assessment of total asset base available therein.
Monetization through disinvestment and monetization of non-core assets have not been included in the NMP.
Further, currently, only assets of central government line ministries and CPSEs in infrastructure sectors have been included.
Process of coordination and collation of asset pipeline from states is currently ongoing and the same is envisaged to be included in due course.
Estimated Potential
The aggregate asset pipeline under NMP over the four-year period, FY 2022-2025, is indicatively valued at Rs 6.0 lakh crore.
The estimated value corresponds to ~14% of the proposed outlay for Centre under NIP (Rs 43 lakh crore). This includes more than 12-line ministries and more than 20 asset classes.
The sectors included are roads, ports, airports, railways, warehousing, gas & product pipeline, power generation and transmission, mining, telecom, stadium, hospitality and housing.
The top 5 sectors (by estimated value) capture ~83% of the aggregate pipeline value. These top 5 sectors include: Roads (27%) followed by Railways (25%), Power (15%), oil & gas pipelines (8%) and Telecom (6%).
Implementation & Monitoring Mechanism
As an overall strategy, significant share of the asset base will remain with the government.
The programme is envisaged to be supported through necessary policy and regulatory interventions by the Government in order to ensure an efficient and effective process of asset monetisation.
These will include streamlining operational modalities, encouraging investor participation and facilitating commercial efficiency, among others.
Real time monitoring will be undertaken through the a separate dashboard.
Syllabus Management + Time Management + Stress Management
As Prelims approaches, you have already worked on your syllabus. If you have practiced mock papers then you know how to manage your time too. But what about STRESS?
Most students lose their nerves during the exam and miss out on qualifying due to stress. The uncertain and unpredictable situation can make you lose accuracy and you may even miss the question whose answers you know. Stress can consume you effortlessly but it takes time and practice to manage it.
That’s why we would like to share these 3 techniques that can help you manage your stress and score in your exam!
A) 15 Seconds breathing exercise – When we feel stressed, our heart beats faster to provide more oxygen to the brain. But if it increases further, it reduces our mental alertness and hampers our memory. What to do?
According to Jason Selk – “Take a 15-second breath. 6 seconds in, 2 seconds hold, 7 seconds out. This will trick your brain into thinking that you don’t need more oxygen and that you can handle the situation.”
Practice this every day so that when you sit for the exam and feel the stress getting to you, you can take 15 seconds and relax before you start answering.
B) The situation has no meaning, we give meaning to it – Remember, the exam is a neutral condition. It is neither stressful nor stress-free. It’s just an exam. The more we hype it up in our minds, the more stressful the paper seems. Relax! Tell yourself that it is nothing more than an exam and you can beat it! Trust yourself and your preparation and do not let the thought of the exam stress you out.
C) Most of our thoughts are negative – A study states that we have over 6,200 thoughts in a day. And when we are under stress, most of our thoughts are negative. During the exam, when we get stressed, we give more value to the negative thoughts and the stress starts building even more.
This is where guidance from your mentors can help you manage stress. All you need to do is remember what your mentors taught you about stress management. Keep in mind how they explained the techniques to manage your time and answers. (Example below)
But if you haven’t learned these techniques, you can still get in touch with our mentors for absolutely free and learn a few stress management techniques that can help you remain calm during the tough times and focus only on cracking the exam.
Another aspirant wrote this:
The mentors at Civilsdaily helped students manage their concerns and stress during their most difficult times. In fact, as a testament, one of our students wrote the following about our mentorship program:
The Prime Minister’s dream of a $5-trillion Indian economy by 2025 along with effective financial inclusion and sustainable economic outcomes is premised on investment from both domestic and foreign investors. Government expenditure can only provide a stimulus, but cannot alone take India to PM’s goal.
For domestic private investments to happen, the role of timely, adequate, and quality (low cost) credit cannot be overstated, particularly during the current times when Covid induced stress is maximum on almost all industries.
With the recent change in the definition, more than 95 percent of Indian companies are bought under the definition of MSMEs. So what ails the MSME sector largely reflects the credit eco-system for more or less the entire industry in this country. So it is very important to identify the issues the MSME sector face today and how we can rectify them.
But before that, let us look at various aspects of the MSME sector.
India’s MSME Sector
The Indian MSME sector is the backbone of the national economic structure and has unremittingly acted as the bulwark for the Indian economy, providing it resilience to ward off global economic shocks and adversities.
With around 63.4 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of India’s manufacturing output.
They have been able to provide employment to around 120 million persons and contribute around 45% of the overall exports from India.
What are MSMEs? How are they defined?
Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 which was notified on October 2, 2006, deals with the definition of MSMEs. The MSMED Act, 2006 defines the Micro, Small and Medium Enterprises based on:
the investment in plant and machinery for those engaged in manufacturing or production, processing or preservation of and
the investment in equipment for enterprises engaged in providing or rendering of services.
The significance of MSMEs:
The significance of MSMEs is attributable to their caliber for employment generation, low capital, and technology requirement.
They are also important for the promotion of industrial development in rural areas, use of traditional or inherited skill, use of local resources, mobilization of resources and exportability of products.
According to the estimates of the Ministry of MSME, Government of India, the sector generates around 100 million jobs through over 46 million units situated throughout the geographical expanse of the country.
With 38% contribution to the nation’s GDP and 40% and 45% share of the overall exports and manufacturing output, respectively, it is easy to comprehend the salience of the role they play in social and economic restructuring of India.
Besides the wide range of services provided by the sector, the sector is engaged in the manufacturing of over 6,000 products ranging from traditional to hi-tech items.
Why the MSME sector is important especially for India?
Employment: The Indian MSME sector provides maximum opportunities for both self-employment and wage-employment outside the agricultural sector.
Help building inclusive and sustainable society: It contributes to building an inclusive and sustainable society in innumerable ways through the creation of non-farm livelihood at low cost, balanced regional development, gender and social balance, environmentally sustainable development, etc.
For example: Khadi and Village industries require low per capita investment and employs a large number of women in rural areas.
Contribution to GDP: With around 36.1 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities.
MSME ministry has set a target to up its contribution to GDP to 50% by 2025 as India becomes a $5 trillion economy.
Exports: It contributes around 45% of the overall exports from India.
How many MSMEs does India have, who owns them?
According to the latest available (2018-19) Annual Report of Department of MSMEs, there are 6.34 crore MSMEs in the country.
Around 51 per cent of these are situated in rural India.
Together, they employ a little over 11 crore people but 55 per cent of the employment happens in the urban MSMEs.
The numbers suggest that, on average, less than two people are employed per MSME.
At one level that gives a picture of how small these really are. But a breakup of all MSMEs into micro, small and medium categories is even more revealing.
What are the issues MSMEs face?
(1)Access to Credit: Most of the MSMEs are in rural and semi-urban areas where access to credit is extremely limited.
They are vulnerable to predatory moneylenders and often fall into a cycle of debt.
Lack of access to finance and timely credit support in business has been a long-standing issue for these MSMEs.
(2) Under Severe Debt: Due to difficulties faced in seeking loans and working capital from banks and delays in receiving government payments and tax refunds, most of the MSMEs are under severe debt.
(3) Under financing by formal institutions: There is an overall debt demand of ₹69.3 trillion of which 84 percent is financed by informal sources such as moneylenders, family, friends, and chit funds (IFC study).
Formal sources such as commercial banks, NBFCs and government institutions cater to a mere 16 per cent.
The failure of traditional lending mechanisms to guide credit towards these MSMEs has led to a scenario where financing is often not reliable, and steady.
This has been particularly exacerbated by the pandemic, as well as the poor state of micro financing in the country, highlighted by India’s estimated credit gap of over $330 billion.
(4)Small size of the majority of firms: More these 80 percent of these MSMEs are in the micro and small category and are depending on informal sources of credit.
The usefulness of the government’s emergency line credit stressed asset relief, equity participation and fund of funds operation make very little meaning and contribution to the sector.
(5)Insufficient financing by banks due to fear of NPAs: Banks employ various methods to limit risk by better assessment of the creditworthiness of individuals or firms, MSMEs included. To keep NPAs down, many credit-worthy individuals are denied loans by banks.
While determining creditworthiness, there are two errors that are common — False Acceptance of a bad applicant and False Rejection of a good applicant.
The former error is detrimental for banks and increases risk while the latter impacts financial inclusion and economic growth itself.
While there are number of punitive actions prescribed against commissions of irregular loan financing, there is complete absence of punitive action against omissions of genuine credit financing of businesses, particularly the MSMEs.
Thus, there is no incentive for bank managers to take risks and finance genuine credit requirements.
This kind of approach to credit adversely impacts both growth and financial inclusion.
(6) Lack of paperwork or digital footprint for small MSMEs, a factor that holds them back from being integrated into the formal economy and deprives the MSMEs to take advantage of the formal credit system.
They continue to gain access to credit against assets such as land, etc. when much of the MSME development has started to follow a digital model.
(7) Technological Disruption: India‘s MSME sector is based on obsolete technology, which hampers its production efficiency.
The emergence of new technologies like Artificial Intelligence, Data Analytics, Robotics, and related technologies (collectively called as Industry Revolution 4.0) is a bigger challenge for MSMEs than for organized large-scale manufacturing.
Other problems
Long receivables cycles make a mess of working capital management.
Limited access to trained labour, technical progress and management support limit their growth.
Other common problems faced by small enterprises are related to the availability of technology, infrastructure and managerial competence, and limitations posed by labour laws, taxation policy, market uncertainty and imperfect competition.
Opportunity areas for MSMEs in India
Telecommunications
Domestic manufacturing of low-cost mobile phones, handsets, and devices;
Manufacturing of telecom networking equipment, including routers and switches;
Manufacture of base transceiver station equipment;
Mobile customer data analytics – services oriented toward analytical solutions; and
Development of value-added services
Healthcare
Manufacturing of personal protective equipment (PPE) and face masks, as the COVID-19 pandemic has fundamentally changed social behaviour, public health and hospital needs, and created new demand;
Manufacturing of low-cost medical devices, and medical accessories such as surgical gloves, scrubs, and syringes;
Low-cost surgical procedures to reduce the cost of healthcare;
Telemedicine; and
Diagnostic labs.
Electronics
Domestic manufacturing of low-cost consumer electronics, consumer durables;
Nano-electronics and microelectronics;
Electronic Systems Design and Manufacturing including semiconductor design, electronic components design and hi-tech manufacturing under India’s ‘National Electronics Mission; and
Strategic electronics, as the government is keen on encouraging the domestic manufacturing of products needed by the security forces.
Others
Other areas that offer opportunities for MSMEs include information technology, pharmaceutical, chemical, automotive, renewable, gems and jewellery, textile, and food and agriculture.
COVID-19 and MSMEs
The MSMEs were already struggling — in terms of declining revenues and capacity utilization — in the lead-up to the Covid-19 crisis.
The total lockdown has raised a question mark on workers payment primarily because these firms mostly transact on cash. That explains the job losses.
The problem with most small Indian businesses is that they operate on thin margins and don’t have the deep financial resources to survive a significant dip in cash flows.
So, when an unexpected event like a lockdown happens and MSMEs can’t sell/produce their goods or services, it also means for many they can’t meet their monthly expenses – this includes costs like paying salaries to their employees.
Fiscal stimulus package to MSMEs under Atmanirbhar Bharat Abhiyan
Finance Minister has announced the first tranche of the Atmanirbhar Bharat Abhiyan economic package. The main thrust of the announcements was a relief to Medium, Small, and Micro Enterprises (MSMEs) in the form of a massive increase in credit guarantees to them.
What is the package about?
Instead of directly infusing money into the economy or giving it directly to MSMEs in terms of a bailout package, the government has resorted to taking over the credit risk of MSMEs.
1) 100% credit guarantee
Firstly, it will give a 100% credit guarantee for Rs 3 lakh crore worth of collateral-free loans to MSMEs that were doing fine before the pandemic hit and are now in trouble.
This deal will only apply to small businesses that already had an outstanding loan of Rs 25 crore or those with a turnover of less than Rs 100 crore.
Thus, banks don’t have to worry about potential NPAs – that headache is transferred to the government.
2) Subordinate debt scheme
The second measure is a ‘subordinate debt scheme’ worth Rs 20,000 crore and is mainly for MSMEs who are already struggling with debt and are unlikely to get fresh funding by themselves.
This scheme will allow banks and NBCs to give loans to MSMEs which are already deemed as ‘stressed’ and are thus less credit-worthy.
3) Availability of Funds
The final step involves the government creating a Rs 50,000-crore fund which will infuse equity into “viable” MSMEs, thus helping them to expand and grow.
The basic idea behind this is that MSMEs will keep their businesses afloat until they are able to operate at pre-pandemic levels.
By doing this, the government also hopes to protect the employment that MSMEs create and thus save jobs.
Government schemes to promote MSMEs
Udyami Mitra Portal: launched by SIDBI to improve accessibility of credit and handholding services to MSMEs.
MSME Sambandh: To monitor the implementation of the public procurement from MSMEs by Central Public Sector Enterprises.
MSME Samadhaan: MSME Delayed Payment Portal –– will empower Micro and Small entrepreneurs across the country to directly register their cases relating to delayed payments by Central Ministries/Departments/CPSEs/State Governments.
Digital MSME Scheme: It involves usage of Cloud Computing where MSMEs use the internet to access common as well as tailor-made IT infrastructure
Revamped Scheme of Fund for Regeneration Of Traditional Industries (SFURTI): organizes traditional industries and artisans into clusters and make them competitive by enhancing their marketability & equipping them with improved skills.
A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE): creates new jobs & reduce unemployment, promotes entrepreneurship culture, facilitates innovative business solution etc.
Micro & Small Enterprises Cluster Development Programme (MSE-CDP) – adopts cluster development approach for enhancing the productivity and competitiveness as well as capacity building of MSEs.
Credit Linked Capital Subsidy Scheme (CLCSS) is operational for upgradation of technology for MSMEs.
Way Forward
Focused regulatory and structural changes which will improve access, ease the transition to the formal sector and increase consumer education and protection are necessary.
In the long term, once these regulatory issues are addressed, sanctioned loans will be disbursed more easily and private investment will be boosted, creating a virtuous cycle for MSMEs in the country.
To minimize the false rejections of good applicants, routine audits of all loan applications on random sampling basis must be undertaken by RBI and administrative action taken against malafide omissions resulting in unethical denial of loans to deserving MSMEs.
The problems faced by MSMEs need to be considered in a disaggregated manner for successful policy implementation as they produce very diverse products, use different inputs and operate in distinct environments.
In general, there is a need for tax provisions and laws that are not only labor-friendly but also entrepreneur-friendly.
More importantly, there is a need for skill formation and continuous upgrade both for labor and entrepreneurs.
Account Aggregators will enable the use and enrich the quality of information needed for lenders to extend loans without collateral back-up.
Issue of preference for a collateralised loan in India
Demand for credit in India far outstrips institutional supply.
Financial Service Providers (FSPs) are well aware of this demand.
And they have been looking for ways to provide credit without collateral back-up.
Historically, financial service providers (FSPs) like banks and non-bank finance companies (NBFCs) have relied on collateral while making lending decisions.
In the absence of collateral pledges, the only way to assess a consumer’s willingness and ability to repay is by examining the prospective borrower’s cash flows.
Your bank account statement is a digital representation of your financial life.
However, this bank account statement-driven process is highly manual, time-consuming, expensive and fraught with potential for abuse.
These shortcomings have held back cash-flow based lending for too long in India.
Borrowers in the country have been underserved because of the preference for collateralized loans.
Both FSPs and consumers are in dire need of a seamless digital way of sharing account information.
Account Aggregator (AA) framework
The account aggregator framework announced by the Reserve Bank of India (RBI) promises to solve these problems.
It aims to make financial data sharing as easy as making a Unified Payments Interface (UPI) transfer.
This is the promise of account aggregation, as envisaged by RBI.
Account aggregators (AAs), with their user interface, will play a pivotal role in closing the trust deficit between FSPs and consumers.
Fenefits of Account Aggregator would work
User control over data: They permit users to control who gets access to their data, track and log its movement and reduce the potential risk of leakage in transit.
A single-window format allows user-friendly data movement and reduces the need for physical transfers and post-facto attestations.
Industry-standard for consent: AAs create a default industry standard for consent that cuts through the dense fine print buried in most privacy policies.
Wider data points to rely on: With the security of this data as a given, AAs allow lenders (or other FSPs for that matter) to rely on a wider selection of data points to determine the trustworthiness of a borrower.
Through AAs, FSPs have a chance to provide cash-flow based credit, personalized financial management tools, robo-advisory services and many more innovative financial products and services to a wider cross-section of people.
Conclusion
By incorporating security, transparency and agility into data sharing, AAs could usher in the most significant transformation of India’s fintech landscape yet.
