An Approach Paper for the Delivery of Comprehensive Financial Services to the Informal and Unorganised Sector

This note attempts to articulate a vision for a scaled, national, financial infrastructure that would deliver a complete suite of financial services to the unorganized sector in India. The note:

• Suggests strategies for the creation of an Enabling Environment through investments in facilitative infrastructure for the growth of the sector.
• Bases its argument for the creation of a facilitative infrastructure on the following premises:
  • Tiny enterprises boost the local economy, as they are labor intensive;
  • The highly dispersed presence of the sector throughout the country creates positive distribution of wealth;
  • Existence of a vibrant financial infrastructure tuned to the unorganized sector, could catalyze its growth.

The note examines:

• The role that the unorganized sector plays in the economy of the country;
• The reasons for the growth of small and tiny enterprises in India;
• The ways in which access to finance helps the growth of the unorganized sector by aiding:
  • Investing in productive assets;
  • Expanding the existing businesses;
  • Improving individual productivity;
  • Permitting individuals to move to higher levels of consumption;
  • Increasing investment in education;
  • Increasing overall risk-taking ability;
  • Increasing wage labor activities.
• A strategy to reduce overall need for capital in the unorganized sector, while increasing its supply.
• The constraints of information asymmetry and difficulty of access.

The paper concludes by recommending investments in facilitative infrastructure in the areas of basic and soft infrastructure and a supportive policy and regulatory framework.