Reports on Financing of Enterprises in the Unorganised Sector & Creation of a National Fund for the Unorganised Sector (NAFUS)


The National Commission for Enterprises in the Unorganised Sector (NCEUS) was set up by the Government of India as an advisory body and a watchdog for the informal sector. In the report titled Financing of Enterprises in the Unorganised Sector, the Commission found that the decline in the credit flow to small-scale industries continued unabated. Non-farm unorganised sector enterprises received only 5-6 per cent of the total institutional credit, despite contributing 30 per cent to GDP. The reasons for this included easy accessibility to non-institutional creditors like moneylenders and the high incidence of non-performing assets (which discouraged banks from giving credit). The NCEUS recommended measures to improve access to finance, including revising the priority sector guidelines to focus on lending to sectors in need, strengthening micro-financing, making available multi-purpose credit cards to self-employed persons, and ensuring better coordination among development agencies.

Considering the urgent need for credit and developmental support in the unorganised sector, and given the limitations of institutions like the Small Industries Development Bank of India (SIDBI) and the National Bank for Agriculture and Rural Development (NABARD), the Commission felt the need for an exclusive, national-level financial institution. Called the National Fund for Unorganised Sector (NAFUS), it would supplement the inadequate efforts of existing financial institutions, and provide financial and other assistance to the unorganised sector. The report titled Creation of a National Fund for the Unorganised Sector (NAFUS) details the mandate, rationale and function of NAFUS.


  1. Small scale industries (SSI) accounted for 39 per cent of industrial production and 35 per cent of national exports, and provided full-time employment to over 29 million people by the end of March 2006. 

  2. The fifth Economic Census (2005) states that there were about 42.12 million non-farm enterprises in the country. ­This included 0.58 million establishments which employed 10 or more workers, and 41.54 million establishments with less than 10 workers. 

  3. Had the SSI sector got the same percentage of bank credit in 2006 that it received between 1994-95 and 1999-2000, the credit given to this sector would have been Rs. 203,190 crores instead of Rs. 101,385 crores. Because of this, the nation lost about 30 million days of employment, about Rs. 500,000 crores in production and about Rs. 150,000 crores in exports. 

  4. The All India Debt and Investment Survey shows that the share of moneylenders in the total dues of rural households rose from 17.5 per cent in 1991 to 29.6 per cent in 2002. However, the Household Indebtedness and Investment Survey of the National Sample Survey Organisation (59th Round, 2003), estimates that nearly 45 per cent of lending in rural areas was by moneylenders and 25 per cent of urban indebtedness was due to moneylenders in rural areas.

  5. In 2002, around 40 per cent of the lending by moneylenders in rural areas was at interest rates above 30 per cent. 

  6. Rural households (73 per cent of the total number of households), owed 63 per cent of the debt to moneylenders, while urban households (27 per cent of all households), owed 37 per cent.

  7. For borrowers, timely credit provided by moneylenders was important – they couldn’t bear the costs of several visits to the bank. The average time taken by commercial banks to decide on a loan was 28.5 weeks, while regional rural banks took 33 weeks. 

  8. Most of the institutional credit given to non-farm unorganised sector enterprises came from scheduled commercial banks. The share of these banks in the total institutional credit given was 66.7 per cent in 2002-03 and 76.7 per cent in 2004-05. The second largest chunk of institutional credit was given by cooperative banks, but their share declined from 17.9 per cent in 2002-03 to 10.6 per cent in 2003-04. 

  9. Even though SSIs are a priority sector of the economy, banks don’t give credit to enterprises in this sector because of the high number of non-performing assets (NPAs). 

  10. The number of commercial bank branches in rural areas declined from 35,134 in March 1991 to 30,572 in March 2006. 

  11. NAFUS will be an apex institution exclusively for the promotion, financing and development of non-farm unorganised sector enterprises. With the proposed higher credit flow from banks to the unorganised sector, an additional 15 million unorganised sector enterprises will be created along with 26 million additional employment opportunities during the 11th Five-Year Plan (2007-2012).

  12. NAFUS’s proposed refinance plan will add 1.23 per cent and 1.68 per cent to GDP (for 2011-12) from units with an investment of up to Rs. 5 lakhs (in plant and machinery) and for those with an investment of Rs. 25 lakhs, respectively. 

     Focus and Factoids by Pratik Dixit.


National Commission for Enterprises in the Unorganised Sector, New Delhi

The Commission had the following members: Dr. Arjun K. Sengupta, Dr. K.P. Kannan, Dr. R.S. Srivastava, V.K. Malhotra, Dr. T.S. Papola and B.N. Yugandhar.


National Commission for Enterprises in the Unorganised Sector, New Delhi


01 Nov, 2007