SBI skips MFIs in state, Goa
Abhijit Lele Mumbai To lessen interest burden on ultimate small borrowers.
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State Bank of India (SBI) has skipped micro-finance institutions (MFIs) in Maharashtra and Goa, as otherwise the interest cost for the ultimate small borrowers would reach up to 60 per cent. |
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"The interest costs, when funds are routed through MFIs, are ridiculously high, at 50-60 per cent, against 18-24 per cent when lent directly to self-help groups (SHGs)," an SBI official said. |
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The interest rate shoots up to farcical levels when SHGs source funds from MFIs at rates ranging up to 24 per cent. |
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The needy get funds from SHGs at rates that seek to cover their costs and also to fund capacity building. The ultimate borrowers are charged rates after adding 1.5 to 2 per cent a month to the cost at which SHGs borrow from MFIs. |
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The SBI official said with the elimination of MFIs, SHGs get funds from the bank at around 8.25 per cent a year and add their margin of 1.5-2 per cent a month when lending to small borrowers. This means the ultimate borrower gets funds at 24-32 per cent a year. |
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"Lending directly to SHGs reduces the interest cost burden on the borrowers, making borrowing cost-effective to a certain extent. It also increases chances of turning the beneficiary families into SBI customers," he added. |
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The official said, "Small borrowers need to pay interest many times the rate at which banks lend. MFIs, including non-governmental organisations, are better suited for development and coordination work. The bank is not against MFIs, but we feel the lending function can be effectively managed by banking entities." |
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SBI still uses the MFI route for lending to SHGs in Andhra Pradesh, Tamil Nadu and Orissa. SBI's cumulative exposure to SHGs is over Rs 1,900 crore. |
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