The Andhra Pradesh government is all set to establish Apex Cooperative Bank for women self-help groups (SHGs) to minimise the scope for microfinance operations in the state.
Though the government had initially worked on the idea of forming a non-banking financial company (NBFC) in collaboration with public sector banks, it had to opt for the cooperative format as bankers informed about certain regulatory constraints in joining the NBFC, according to a senior government official.
The state Cabinet on Tuesday approved the proposal, which is expected to be formally launched next month.
The bank will be set up with the existing mandal samakhyas (federations of SHGs at mandal level) as its lending arms, thus bringing the vast SHG network into its fold. It is also designed to extensively leverage modern technology for loan transactions in such a way that a loan is sanctioned within 48 hours, according to government officials.
There are about 950,000 SHGs in the state, federated at the village level as village organisations (VOs). These VOs, in turn, are federated at mandal(administrative unit above the village level) mahila samakhyas (MMS), representing almost 10 million women members. The MMS, which have been involved in lending to SHGs for the past two years, currently handle Rs 7,000 crore business.
A VO has about 30 SHGs while an MMS has 25-30 VOs. These groups have been tied up with the SHG-bank linkage programme by government agencies. About Rs 9,000 crore is budgeted by various commercial banks under this linkage for the current financial year.
The proposed bank is expected to play a major role in meeting short-term financial needs of those groups that are already servicing term loans from commercial banks. As the groups are denied fresh leverage by banks during the currency of existing loans for the 3-5 year repayment period, the poor people have no alternative but to approach MFIs and money lenders for loans at high interest rates, the officials said.
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The loans extended by the proposed bank would also carry the existing ‘Pavala Vaddi’ scheme under which timely repayments attract less than 4 per cent interest while the government reimburses the remaining interest component from the public exchequer.
The MFIs had extended about Rs 6,000 crore before the state came out with the microfinance Act.
“They have to come up with a package to recover their loans, particularly in terms of forgoing a part of interest amount. The government will be in a position to help them recover these loans only if they come forward with such a proposal,” R Subrahmanyam, principal secretary, department of rural development, told Business Standard.
The government will put in Rs 100 crore equity while the MMS will bring in Rs 200 crore share capital to form the bank. It would raise Rs 700 crore by leveraging loans from banks in the first year. The fund size will be enhanced to about Rs 4,000 crore in the next 2-3 years to take care of the SHG needs in full measure.