A micro-credit push by banking sector will be another step towards welfare for those at the bottom of the pyramid. Elaborate (200 Words)
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IAS Parliament 3 years
KEY POINTS
· The RBI’s move to almost treble/double the family income limit for rural and urban households for their loans to be classified as priority sector micro-credit and make loans purpose-neutral is the most important aspect of this announcement.
· Banks have not been lending micro loans directly except under the umbrella of the Livelihood Mission group loans or through on-lending by MFIs because the ticket-sizes were too small.
· The latest announcement is essentially aimed at making micro-loan norms simple and straightforward. It has also stipulated that the repayment load of a household should not exceed 50 per cent of the income, which is a deterrent to over-indebtedness.
· While small loans do support people build livelihoods if they run micro/small/village-level enterprises, there is no conclusive evidence yet that micro credit by itself can lead to poverty reduction.
· The selection of beneficiaries is of utmost relevance. Creation of incremental income either directly or indirectly and incremental debt-servicing capacity should be the yardstick while extending credit.
· Micro loans can also go for conventional “non-productive” purposes as even they have positive economic consequences. For instance, indirect surplus-value generation out of micro loans can happen when the loan is used.
· A micro-credit push will be another step towards ‘Antyodaya’ — welfare for those at the bottom of the pyramid.
Manish 3 years
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IAS Parliament 3 years
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