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SBI skips MFIs in state, Goa

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Abhijit Lele Mumbai
Last Updated : Feb 25 2013 | 11:50 PM IST
To lessen interest burden on ultimate small borrowers.
 
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.
 
"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.
 
The interest rate shoots up to farcical levels when SHGs source funds from MFIs at rates ranging up to 24 per cent.
 
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.
 
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.
 
"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.
 
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."
 
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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