A silent revolution that has swept through rural India over the past six years has been the linking of hundreds of thousands of dollars of women’s self-help groups (SHGs) who are supported by micro-loans for their projects. subsistence at moderate interest rates, mainly by public sector banks (PSBs).
The National Rural Livelihoods Mission (NRLM) under the leadership of Deendayal Antyodaya Yojana (DAY) aims to address the last category of marginalized women who normally do not have access to formal means of credit. The Modi government’s own account opening campaign, Jan Dhan Yojana, provided the initial impetus for the NRLM to make such great progress.
If financial inclusion initiatives through bank accounts had not been launched, the subsequent effort to sanction and disburse loans for income-generating activities for these women would never have materialized. In terms of sequencing, a bank account is the first step in inclusive microcredit to have an impact on the ground in rural areas.
It is now known that there are at least 20.05 crore of women who hold basic bank accounts under the PMJDY, this is the number of women who have benefited from a transfer of 500 under Prime Minister Garib Kalyan Yojana as part of the Atmanirbhar Package stimulus measures.
Under the NRLM, according to the latest estimates, around 34 lakh SHG have been linked to the credit; that is, members of these self-help groups received small loans for activities such as on-farm food processing, dairy production, clothing, micro-trade and floriculture on small plots. Each SHG has a minimum of 10 and a maximum of 20 members. Thus, the total number of beneficiaries, all women, is at least 3.5 crore, which translates into a loan for 3.5 million households. The annual change in credit flows is given in the attached table. According to NRLM figures 60 lakh SHG are tied to the bank so far (they have bank accounts) and therefore we can assume at least one credit support opportunity at around 25 lakh SHG without much ado.
This is the opportunity that banks can seize by viewing this “bottom of the pyramid” not as a social bond or a mandatory loan, but as a viable business opportunity. It will also be rewarding for shareholder value. India’s largest lender, SBI, has taken the first step in creating a separate Financial Inclusion / Micro Markets (FIMM) vertical led by a Deputy Managing Director to take advantage of these opportunities.
The government and the RBI have also announced a number of measures to make lending on this model hassle-free.
Some of the key measures are:
SHG is a informal group and registration under a company law, state cooperative law or partnership company is not mandatory as instructed by the RBI
The only condition is that the self-help groups follow the Panchasutra, the five essential rules of conduct – regular meetings, regular savings, regular internal loans, regular collections and proper bookkeeping.
DAY at a provision for interest subsidy, to cover the difference between the bank lending rate and 7%, on all loans from banks / financial institutions that benefit women in self-help groups
That’s enough if the SHGs have existed for at least six months according to the account books of the SHGs and not from the date of opening of the SB account. This means that SHGs can receive loans six months after their establishment, even if the accounts of the SB are recent.
The loans can be used by members to meet social needs, swap high-cost debts (repay informal loans at “slash” rates), build or repair houses, build toilets, and find sustainable livelihoods by individual members within self-help groups or to fund any viable joint activity initiated by SHGs.
No warranty and no margin would be charged up to ₹ 10 lakh limit at SHG. As part of Atmanirbhar’s announcement, this limit has been increased to ₹ 20 lakh, but the implementation of this proposal is delayed.
These living loans have a much lower default than the business loans. There is no siphoning of funds, there are no fancy projections presented for obtaining bank loans, and there is no falsifying the numbers to show that non-existent capital has been brought in. garden path. In terms of job creation per unit of credit, these micro-loans would undoubtedly outweigh business loans.
And finally, when business loans go through the IBC process, the haircuts have reached 99%. Bankers were awarded 1 crore against ₹ 100 crore in outstanding corporate insolvency proceedings. It couldn’t have been worse than that in recovery!
Low default rates
In contrast, these subsistence loans have a national average NPA rate of only 2%, with some states like Bihar, Andhra Pradesh, and West Bengal having default rates of 1% and less. Do we need further proof of who banks should lend to and where the focus should be?
The average interest rate on these loans is around 12 percent. For lenders, this results in an attractive net interest margin. For borrowers, this is a much gentler alternative. While informal credit in rural areas would cost up to 100 percent of actual annual interest rates, even RBI-regulated microfinance institutions (MFIs) charge 22-24 percent per year to cover costs and earn. margins.
There is a strong case for increasing credit throughout the DAY, or even doubling the flow of credit in a year. The PSBs have been at the forefront of this massive rural surge.
DAY-NRLM should ensure that at least one member of each identified poor rural household, a woman, is integrated into the SHG network by March 2022. It is observed that a majority of DAY loans are used for agricultural activities. and related.
Since female borrowers are mostly members of farm households, these micro-loans, more than even conventional Kisan Credit Card (KCC) loans, have the potential to improve farm incomes.
Since the agricultural sector has seen growth even in these times of Covid, a push through certain incentives for DAY (small capital grants, say 5,000 per one-year SHG, or implementation of the DAY grant). (interest in all districts of India) has the potential to double the income of rural households.
The author is a senior executive of a public sector bank. Opinions are personal.