In an alternate model to the existing micro finance institutions(MFIs) Andhra Pradesh government is contemplating the formation of a separate Non Banking Finance Company(NBFC) in collaboration with public sector banks to meet the micro credit requirements of SHGs on a sustainable basis.
The model involves bulk financing of Mandal Samakhyas, the federated bodies of SHGs at Mandal level(the administrative unit above the level of village panchayats), which in turn provide loans to members for income generating activities for multiple times.
“We are in discussions with banks and other authorities on floating a separate outfit that would give bulk finance to Mandal Samakhyas. We are working on feasibility study and DPR for the proposed initiative,” Reddy Subrahmanyam, principal secretary, Rural Development told Business Standard on Thursday.
Under the current SHG-Bank linkage programme, once the SHG takes a loan from the bank it would be entitled for another round of credit only after repayment of the existing loan whose installments may spread across 3-5 years depending on the amount. This normal practice is effectively denying the genuine need for further funding of income generating activities by the members of these groups during the intervening period, driving the poor to access high cost loans from MFIs and money lenders.
The idea behind promoting a separate financial outfit is to take care of the effective demand arising out of income generating activities on a continuos basis, Subrahmanyam said.
“There is a need to supplement finance and ensure timely availability of credit to SHGs. This loan will be in addition to the regular term loan extended to SHGs and the loan will be accessed by only a needy member of the group unlike direct SHG loan where all he members take loans," the concept paper prepared by the Society For Elimination of Rural Poverty (SERP) under the Rural Development Department explained.
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Once the new structure of financing the SHGs is put in place the role of MFIs in micro credit operations in the state are expected to get further diminished as the Mandal Samakhyas will be replacing them in providing loans to SHG members. These samakhyas will be integrated in to the new structure by providing them with bulk finance, for the first time in the history of SHG movement.
The new structure is expected to be more efficient in many ways as the government is proposing to use the technology backbone involving electronic transactions.
“The representative of a village organisation( the federated body of SHGs at village level) sends a message to Mandal Samakhya by phone requesting the sanction of a loan intended for a particular member of the group. The system will automatically generates the advice and the money would be electronically transferred to the SHG,” Subrahmanyam said while explaining the usage of mobile technology proposed for this new endeavour.
The banks are already started responding to this new initiative. Union Bank of India has come forward to provide bulk finance to the extent of Rs 50 lakh to 20 Mandal Samakhyas, according to the officials.