For small and micro business, 2021 has been more painful than 2020. The second wave of COVID-19 hit harder than the first wave.
A moratorium during the first wave helped lenders and borrowers at least temporarily ward off financial stress, but this benefit was not available to them in the second wave.
Lenders carried out selective restructuring but the interest burden and deteriorating credit records due to payment slippages have left both lenders and borrowers wary. Unsecured lending has virtually dried up. There is a need for some sound credit relief and guarantee mechanisms to revitalise lending to micro and small businesses.
Surge in digital payments and lending is certainly helping a certain section of customers. This segment is expected to grow exponentially as traditional lenders take time to warm up and revise their credit policies.
Credit squeeze for the informal sector is expected to continue in 2022 over fears of a third wave while customers struggle to straighten their credit records dented by past two waves. Unsecured micro-enterprise loans will probably continue to be the hardest to access.
Riding on the UPI boom, fintechs will push forward on BNPL, consumer loans, personal loans and LAP. Flow based lending for the upper segment of MSMEs is also expected to pick up.
Banks will refocus on housing, vehicle and gold loans in the retail segment. More collaboration between fintechs and banks is likely to explore other segments.
NBFCs will become a bit cautious given new provisioning norms that will be applicable from 22 October. However, the co-lending model shows some promise for furthering financial inclusion. BCs and fintechs will begin reinventing their business models in view of the digital lending committee report released last month.
However, there are several uncertainties given the impending third wave and shifting regulatory landscape.
Sasidhar N Thumuluri is Managing Director and CEO of Sub-K, a digital finance intermediary that offers affordable financial and payment services to the underserved segment