Coronavirus Lockdown: Why Rs 5,000 crore credit facility for street vendors may fall short

Financial relief in the form of loans is unlikely to work for a majority of street vendors

The urban landscape in India will be shaped by how street vending activity emerges post the lockdown. As people stayed indoors and city streets lay deserted in compliance with a nationwide lockdown since March, street vendors lost their source of livelihood. Many were also subjected to unwarranted police harassment as they tried to sell even essential items such as vegetables.

They were recognised as a particularly vulnerable group by the central government as one of the first measures announced as part of the ‘Atma Nirbhar Bharat’ economic package on May 14, directed relief for them. This involves a Rs 5,000 crore special credit facility, which means about 50 lakh street vendors across the country could avail loans of up to Rs 10,000. They have not yet clarified how the loan application process will work and which institutions will be involved.

But how meaningful is the proposed relief through loans when street vendors have been found to have limited, even reluctant, engagement with formal financial institutions? This was a significant finding from a city-wide survey of 1,000 food vendors and small-scale food establishments in Bengaluru carried out in September and October 2018 by the Indian Institute for Human Settlements (IIHS).

Street vendor survey

Only 10 percent of respondents said that they had ever applied for a bank loan to run their businesses and less than a third of the vendors we spoke to said they did not even have a bank account (280 vendors).

Moreover, less than one percent of food enterprises surveyed had accessed any government financial support schemes for starting or operating their businesses. These key factors on how vendors source finance raise concerns on how they will avail the Rs 10,000 loan promised to them.

When vendors were asked if they believed banks were reluctant in giving out loans, a majority (61 percent) responded optimistically, saying that they believed banks were willing to give loans to informal enterprises like theirs. However, very few vendors had actually applied for loans. A lack of knowledge about the process, documentation requirements, provision of collateral and even the fear of being unable to repay the loan could have held them back.

Sources of capital for street vendors

Since banks are rarely approached for financial support, what sources do food street vendors use to start their businesses? We found that 57 percent of vendors in our sample used their personal savings. This finding is key since, under present conditions, most vendors will have run out of their savings and will need the Rs 10,000 loan offered by the government to merely restart their businesses. The money needed for sustaining it during the coming uncertain months will have to be borne by themselves and for many vendors, this comes at great financial risk.

Vendors were also found to take loans or received monetary gifts from friends and relatives to start their businesses, which is less viable now as more people remain strapped for cash.
The only other sources of finance are money lenders (32.8 percent) who charge steep interest rates and micro-finance institutions (8.2 percent). Crucially, only 2.8 percent of vendors accessed formal banks to start their food business.

Even during the best of times, street vendors do not fare well financially. Our survey found that the average monthly profit of food street vendors was about Rs 13,000. For over half the vendors, income from their food vending businesses constituted over 90% or more of their total household income, meaning lakhs of street vendors’ families across the country have lost almost all their household income over the last two months, while also facing the threat of the virus and other dispossessions.

What can the government do to ease the return of street vendors?

While the Rs 5,000 crore relief package for street vendors is a start to helping street vendors re-establish their livelihoods, our survey highlighted that financial relief in the form of loans is unlikely to work for a majority of vendors. They, and other informal sector workers who have lost their livelihoods, urgently need money in their pockets through direct cash transfer rather than credit schemes.

With the government now relying on the MGNREGA scheme to deliver benefits in rural areas, there have been calls to start a similar programme in urban areas that might be used to deliver financial help to urban informal workers like street vendors.

While the government is yet to detail how this COVID-19 relief package will work, it is important for the process to be simple and accessible to as many vendors as possible. This is a good moment to effectively constitute Town Vending Committees (TVC) mandated under the Street Vendors Act 2014. TVCs act as representatives of street vendor groups and could play an important role in facilitating the delivery of this credit scheme.

Keerthana Jagadeesh is an associate and Shriya Anand is a senior consultant with the Indian Institute for Human Settlements in Bengaluru.

Disclaimer: The views expressed above are the authors' own. They do not necessarily reflect the views of DH.