The Need for a Credit Bureau for the Non­Corporate Small Business Sector in India

Abstract

The Non ­ Corporate Small Business Sector in India today is the largest contributor of GDP, contributing to 45% of the GDP. This sector is considered as the backbone of the economy, three times the size of the corporate economy. About 50 crore lives depend on this sector for their livelihood. 90% of the county's employment is generated by this sector consisting of 46 crore employees.

A large portion of this sector runs as Own Account Enterprises (OAE). This sector consists of about 5.7crore enterprises such as simple manufacturing units, shopkeepers, fruit and vegetable venders, repair and maintenance shops, small scale food processors, street vendors, dairy farmers, poultry units etc.

While all this could be fascinating, the credit facilities provided to this sector is substantially disappointing. 90% of this sector does not get access to outside sources of finance. They rely on local money lenders and other unreliable sources of finance. Over the decades many efforts have been made to tap this opportunity in a profitable manner. These efforts have however largely failed despite a great lead by the RBI and the Government. Less than 15% of bank credit goes to this sector. RBI constituted a Committee chaired by Shri Y. H. Malegam to study issues related Micro financial problems in India in 2011. One important recommendation of this committee was creation of one or more credit bureaus for the Micro finance sector.

This paper brings about the importance and the need for an exclusive credit bureau to cater to the needs of the Non ­ Corporate Small Business Sector. This study will help to understand the importance of a Credit Bureau for the banks catering to the Non­Corporate Small Business Sector.