Credit deepens in Gujarat

SBI will use NGOs to extend micro credit to Self Help Groups in Gujarat.

State Bank of India (SBI) is looking for NGOs to act as mediators between the bank and assorted Self Help Groups (SHGs) in Gujarat.

"We need more NGOs in order to increase the number of SHGs to provide finance," says M S Patel, business head, agriculture, AGM, Gujarat circle, SBI.

Now, SHGs are voluntary groups of people who pool resources to help out group members who need lumpsums (often by rotation).

The banking industry, by stepping forth with cash, hopes to penetrate those parts of the country left unserved by the formal banking system.

Thanks to SBI's efforts, a rural borrower can get funds at an annual 24-32 per cent interest rate (of which SBI takes just 8.25 per cent and the SHG the rest).

However, banks lack the wherewithal to identify genuine SHGs, and this is where NGOs that operate in rural areas come in. SBI will sign MOUs with NGOs to mutual benefit.

As India's largest bank, SBI bears responsibility for raising India's low credit-to-GDP ratio, and has already given around 992 SHGs in Gujarat an aggregate sum of Rs 2 crore in the nine-month period ended December 2005.

By the end of the current financial year, it would have notched up another Rs 1 crore, covering some 600 SHGs. In rupee terms, the figure may sound rather low, but it does deliver relief to thousands of people with erratic income in dire need of funds at non-usorious rates.

"We provide finance to the tribal families on a daily basis, and they return the amount on the commited day. Nobody else is offering such a service to SHGs in tribal regions," claims Patel.

These are not handouts, he adds. Loan takers have their own sources of income. In Kutch, for example, handicrafts make for livelihoods, while Saurashtra groups tend to earn their money on cattle and agriculture. SBI's role is to smoothen their finances, allowing them to match expenses or investment with their income.

An escape from subsistence living permits asset creation, a big step away from abject poverty.

Rural penetration helps SBI deliver other services as well, some of them more remunerative. "We also provide services like tractor finance and home finance," says Patel, adding that after the recent floods in the state, SBI offered flood financing to groups stricken by the loss of houses and their means of livelihood.