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The poor in Andhra Pradesh may soon have an alternative source of funding to MFIs, and at about one-third the interest they are paying on MFI loans at present.
The Andhra Pradesh Government is in talks with the National Bank for Agriculture and Rural Development (Nabard) for providing direct, very short-term cash loans to about eight lakh members of self-help groups (SGHs).
Discussions on
“The first round of discussion is already completed. The objective of the move is to provide an alternative line of credit to the poor at about 12 per cent interest to meet any urgent/unforeseen cash requirement,” Mr R. Subrahmanayam, Principal Secretary, Department of Rural Development, Government of Andhra Pradesh, told Business Line here on Monday.
MFIs are able to attract the poor with the offers of short-term credit at an “alarming rate” of interest. “Though MFIs say that they are giving loans only to productive loans, in practice this is not completely true,” said the official.
The State Government, which was the first to bring in MFI Regulation Act in the country, now feels that it should partner with a bank which can directly lend to SHG federations at a low interest rate.
It is likely that the Govt would tie-up with Nabard Financial Services Ltd (NABFINS), a subsidiary of Nabard, for the purpose.
“Instead of intermediaries (like MFIs), the bank would lend to SHG federations which would in turn lend to their members very short-term to short-term loans. There will be no profit motive unlike MFIs,” Mr Subrahmanyam said.
OTHER FUNDING
The proposed direct lending to SHG federations will be in addition to the Rs 9,000 crore funding for the groups through bank-linkage programmes.
The State is also working on another line of credit to people/groups which are involved in production activities such as dairy farming.
“Here the requirements of loans could be higher than normal SHG linkage. We are working on tie-ups with some experts who can handhold these groups to bank credit,” the official said.
The MFI activity in Andhra Pradesh, which accounts for about 30 per cent of total outstanding portfolio of over Rs 33,000 crore of MFIs in the country, has come to a standstill since the MFI regulation in October 2010.
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