Why do people go to moneylenders for loans, even though they have to pay exorbitant interest rates? Most of the time, it’s because they get a hassle-free loan.

Ashok Reddy, Chairman of the Karnataka Vikas Grammena Bank, found this out for himself on a visit to rural areas. In many cases the loan was as small as ₹5,000, which was ignored by banks.

Sensing an opportunity here, in January this year the bank launched a scheme called Vikas Janashakti to serve customers at their doorsteps.

Reddy, who was in Mangaluru recently, told BusinessLine that loan repayment under this scheme is linked to the daily deposit scheme (also known as pigmy deposit scheme in some banks). Under this, an agent of the bank collects small deposits from customers at their doorsteps every day.

A rural youth may want to open a petty shop in his village or a small motor winding business. Generally, the requirement is less ₹50,000. But the lack of access to small loans either drives them to moneylenders or spells the end of their entrepreneurialaims. This is where Vikas Janashakti can make a difference, he said.

“Till now, we have reached more than 20,000 beneficiaries, and disbursed around ₹120 crore under the scheme,” he said. The bank lends ₹5,000-₹50,000 under the scheme.

The interest rate charged by the bank is around 14.5 per cent a year. While that may seem a trifle high, he pointed out that some of the microfinance institutions charge around 24-26 per cent a year.

This model also ensures smooth repayment. As the loan is linked to the daily deposit scheme, the bank recovers the loan amount from the deposit scheme, every month, through a standing instruction.

Those who find it difficult to pay a lump-sum amount at the end of the month are also benefited by this model.

“In the days to come, Vikas Janashakti will be the flagship product of our bank,” Reddy said.