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CEA Nageswaran: Link Inclusive Finance to Social Security for Success

Chief Economic Advisor V. Anantha Nageswaran emphasized that inclusive finance must be part of a broader ecosystem including healthcare insurance and social security to protect both lenders and borrowers. He stated that unexpected events like health shocks are a primary cause of loan defaults, and well-designed credit alone is insufficient. Nageswaran called for mainstream banks to actively absorb proven borrowers and argued that timely payments and fair contracts are more powerful for small enterprises than microcredit. He also defined true impact investing as explicitly pricing in social returns and accepting lower financial returns.

Key Points: CEA: Inclusive Finance Needs Social Security Ecosystem

  • Health shocks cause loan defaults
  • Banks must absorb proven borrowers
  • Impact investing requires accepting lower returns
  • Timely payments beat microcredit
2 min read

Inclusive finance must be linked to social security: CEA Nageswaran

Chief Economic Advisor V. Anantha Nageswaran argues inclusive finance must be embedded in health insurance and social security to protect lenders and borrowers.

"True impact investing means explicitly pricing in social return and accepting lower financial return in exchange. - V. Anantha Nageswaran"

New Delhi, Jan 13

Inclusive finance has to be embedded in a broader ecosystem of health-care insurance and social security to protect lenders as well as borrowers, Chief Economic Advisor V. Anantha Nageswaran said on Tuesday.

In his address at the Global Inclusive Finance Summit, Nageswaran said one of the main reasons why people default on the repayment of loans was unexpected events such as health-related shocks.

"Even well-designed credit cannot do everything on its own. When illness strikes, even a growing business can stumble," the CEA remarked.

Nageswaran called for mainstream banks not to merely be spectators to the process of formalisation of the economy but actively absorb the new proven borrowers into their core portfolios.

Talking of financial inclusion, he said: "True impact investing means explicitly pricing in social return and accepting lower financial return in exchange. That is not a weakness; it is the very definition of responsibility in this sector."

Highlighting the success of the PM Svanidhi scheme, Nageswaran said that even street vendors can be disciplined and can grow. "The question now is whether the formal banking system is willing to recognise the reality and offer them overdraft, insurance, and working capital."

Emphasising that a person should not remain a micro borrower forever and should have more financial options in order to expand his or her business, Nageswaran said the most powerful financial inclusion tool is not a loan but a timely payment to these micro entrepreneurs.

"Inclusive finance does not have to be a separate heroic effort. Fair contracts and prompt settlement do more for small enterprises than micro credit ever will," he remarked.

He said credit that is not matched by rising earning capacity leads to stress instead of empowerment.

The CEA said investors cannot demand the same returns from these institutions as they do from consumer lending or speculative fintech entities.

"True impact investing means explicitly pricing in social return and accepting lower financial return in exchange. That is not a weakness; it is the very definition of responsibility in this sector," he said.

The discipline of low and expected returns gives institutions the scope to focus on customer success rather than just credit and revenue expansion, Nageswaran added.

- IANS

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Reader Comments

R
Rohit P
Finally, someone in a high position is talking sense! "Fair contracts and prompt settlement" – this is what my father's small manufacturing unit needs, not another high-interest micro-loan. The system needs to graduate successful small borrowers, not trap them.
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Aman W
The PM Svanidhi example is spot on. Our local vegetable vendor got a loan, built a proper stall, and now does digital payments. But he still can't get a simple overdraft from a mainstream bank for seasonal stock. When will that change? 🤔
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Sarah B
As someone working in development finance, I appreciate the CEA's nuanced view. The call for investors to accept lower returns for higher social impact is brave. The chase for unicorn-level returns in fintech has distorted the real purpose of inclusive finance.
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Vikram M
Good speech, but the real test is implementation. We've heard similar ideas for years. Will RBI issue guidelines? Will public sector banks, burdened with NPAs, truly "actively absorb" street vendors into core portfolios? I'll believe it when I see it. The intent is right though.
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Kavya N
"The most powerful tool is a timely payment" – so true! My mother runs a tailoring business and her biggest issue is clients, even government departments, delaying payments for months. Cash flow is more important than credit. This article gives me hope for small entrepreneurs like her. 🙏

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