Karamveer Dhillon, Co-Founder and CEO, Perpetuity Capital

Karamveer Dhillon is the co-founder and CEO of Perpetuity Capital. A NBFC- Non Banking Finance Corporation, he aims to redefine and transform credit asset ownership for single owner-operators, drivers, and underserved entrepreneurs in the auto sector to ensure financial penetration.


The informal sector dominates the Indian employment scenario. More than 80% of the non-agricultural job market in India is informal. However, with time informality has expanded to the formal sector too, due to very limited employment generation in the sector, leading to growth of contract labour force and outsourcing of production. There are various bottlenecks which subdue the growth potential of the informal sector (majorly MSMEs). However, the major one is that of funding, which has aggravated due to the pandemic lockdowns.

The funding is necessary for the growth of any sector, be it formal or informal. But the lack of funding has pushed the informal sector into a vicious cycle of debt, poverty and low-productivity. However, to permeate this the IMF has put huge focus on the fintech sector. It anticipates that the fintech sector could fund and formalise the informal sector which would further expand the growth potential of the economy.

The Informal Sector of Indian Economy

There has been a huge growth in the informal sector with respect to employment opportunities. Consequently, the informal sector contributes almost a third of GDP for the developing and emerging economies. However, the sector is marked with huge drawbacks, which can be highlighted with the fact that formal sector employees in developing economies earn 19% more than informal sector employees. This remarkable difference is due to a lot of factors which includes high interest rates despite steps taken by the government to promote the micro, small, and medium enterprises (MSMEs), unprotected labour laws, low productivity, and undefined workspaces. Among many other roadblocks that hinders growth; unavailability of required credit crushes the growth aspects for the sector. However, this concern of the sector is being addressed by the growth of NBFCs targeting the informal sector. It is also in line with the predictions of the world economic institutions such as the IMF. With the prediction and expectations put forward by the IMF, the growing fintech sector could act as a pillar of support for the informal sector.

Funding Gap and Fintech Startups

As per a research, banks tend to reject 3 out of 4 loan applications they receive from small or medium enterprises. It clearly highlights their apprehension regarding informal sector financing. Whereas, fintech startups are going to play a crucial role in P2P lending and crowdfunding by shortening the $ 2 trillion funding gap for millions of people involved in the informal sector worldwide, according to the World Economic Forum (WEF). The globe is witnessing alternative financing options to ease financing for the informal sector. One such alternative is the collaboration of banks and fintechs. Such collaboration enables banks to offer better financing service to the people employed in the informal sector, in a fast and convenient way. It is also profitable for fintechs as they gain access to the large customer base of banks, infrastructure, and low capital costs. Fintechs are enabling hassle free path for efficient and personalised financing facility for the MSMEs. Meanwhile, the ratio of problems around the financing gap is huge which needs to be tackled through multiple approaches. To bridge the perceptible financing gap, the credit enabling system must introduce and adopt new financing models and tools such as – equity finance, TReDS, and peer to peer lending.

The global disruption of economic activities due the outbreak of pandemic has strengthened the role of fintechs in providing credit facilities to the informal sector. The implementation of cutting-edge technologies and digital tools like artificial intelligence, data analytics, and machine learning can aid in the drive to proper financing services across the nation. With regulations such as Unified Payment Interface (UPI), Application Programming Interface (API), and Aadhar, the government of India has also paved the way for the fintech industry to offer flexible and efficient credit financing to the people.

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