Hyderabad: The Chief Minister, Mr N. Kiran Kumar Reddy, has initiated measures to formulate a separate bank to extend credit facility to the IKP groups as assured by him recently in a meeting.
The Chief Minister, in a letter to the Union Finance Minister, Mr Pranab Mukherjee, thanked him for announcement in the Union Budget 2011-12 establishing an SHG Development Fund and requested to operationalise the same in the State which is rightly the ‘Home of SHG movement’ in the country. The Chief Minister urged the Union Minister to convey the Centre’s concurrence for equity contribution of Rs 100 crores from the SHG Development Fund.
The text of the letter reads as follows: “At the outset, I thank you for your announcement in the Union Budget 2011-12 establishing an SHG Development Fund. The purpose of this letter is to request you to operationalise the same in the State which is rightly the ‘Home of SHG movement’ in the country.
You are aware that Andhra Pradesh is the role model in organising the rural poor into Self Help Groups (SHGs), wherein more than one crore rural poor households have been organized into 10 lakh SHGs, which are further federated at the village and mandal level. Over a period of 10 years, this structure has acquired stable systems and sufficient strength to partner the financial inclusion mission of government. All the 10 lakh SHGs are linked to the Banks for their financial needs, covering predictable, income generating activities. Despite this inclusion, SHGs are facing considerable credit gap due to the inability of the banks to address emergency credit needs and fixing of artificial limits for SHG bank lending. As a result, many unscrupulous MFIs have been lending at usurious rates; and using coercive methods for recovery. Lack of innovation in credit products, non-availability of credit during the currency of another loan (generally three years) and the lack of timely availability of credit are issues driving the poor to still avail high cost borrowings from the MFIs and the informal sector.
It is in this context, that the need for establishing a new financial entity which can operate at low costs through the SHG network to provide niche lending to the SHGs has emerged. Andhra Bank while taking the leadership in this has entrusted the matter for a detailed feasibility study to Messrs Andhra Pradesh Mahila Abhivruddhi Samakhya (APMAS) along with Prof. Sriram (IIT, Ahmedabad). The feasibility study submitted by Messrs APMAS, which has established the viability of the proposed institution which operates exclusively through the 1,089 Mandal Samakhyas (MSs) by providing credit limits to each Mandal Samakhya, is enclosed herewith.
The salient features of the proposed structure are: The proposed NBFC will only resort to gap funding; and not be an alternate to the SHG bank linkage system. The existing SHG Bank linkage will continue in the current manner; It will primarily address the credit needs emerging out of unforeseen emergencies and higher order funds that are needed for productive purposes; The NBFC will operate by providing credit limits to each MS depending on their corpus and functional structure. In turn, each MS will give similar credit limits to the Village Organisation of SHGs (VOs) after due assessment of their performance. The limits of amounts that an SHG can get will be pre-decided based on a decision algorithm which will consider (a) rating of the SHG (b) the existing loan limits that the group has drawn/ outstanding and (c) the savings/group funds; In case of other loans, suitable arrangements will be worked out keeping in view of the capabilities that exist in intermediary level institutions; d) Within the given credit limits, the VOs can assess the requirements of SHG members and recommend the same to the Mandal Samakhyas for sanction of loans, using an automatic route; The NBFC will work closely with the banks to ramp up innovative products through alternative channels like emergency loans through larger individual limits, (b) livelihood loans guaranteed by the SHG to be directly given by banks, (c) greater emphasis on innovation in savings products that give the banks greater comfort and (d) innovative use of data particularly demographic, education, marriage, health and social events. f) The NBFC will operate on strict efficiency parameters to deliver credit to the SHG members at interest rates below 15%. All operations of the Bank will be IT driven linking the Mandal Samakhyas through internet banking system. The NBFC will be a single branch company, with minimum staff strength. g) Andhra Bank will lead the proposed NBFC along with such other Nationalised Banks which show interest in the venture.
For lending operations, the NBFC will borrow from banks and through flotation of market related instruments. The NBFC will also actively seek funds from multi-laterals interested in financial inclusion and vulnerability reduction. The NBFC will also look for grants for IT and innovation from NABARD & similar agencies; i) SERP will undertake capacity building of the Mandal Samakhyas by recognizing the problem areas, innovating and disseminating information, so that the systems of due diligence, utilisation and the repayment of the loans functions efficiently; j) The NBFC will have an authorised capital of Rs.500 crore and a paid-up capital of Rs.350 crore in the initial year. The equity is proposed to be contributed as follows: Government of India (Rs.100 crores), Government of Andhra Pradesh (Rs.100 crores), Andhra Bank, State Bank of Hyderabad & NABARD (Rs.50 crores each). Apart from this, the Mandal Samakhyas would also be encouraged to become the shareholders in the company.
In this context, I will be grateful if orders are issued through the Department of Financial Services for the following: a) Permission to the Andhra Bank, State Bank of Hyderabad and NABARD to be the main promoters of the NBFC. b) RBI may be requested to provide fast-track clearance of the proposal for registration of the NBFC. c) Convey concurrence for equity contribution of Rs.100 crores from the SHG Development Fund.
Under your kind guidance, we are confident that this new institution would create a sustainable model for financing the SHGs in their path for financial inclusion and development.”
In another letter to Sri Vilas Rao Deshmukh, Union Minister for Rural Development, the Chief Minister requested to convey concurrence for the proposed NBFC.
In separate letters to Dr Prakash Bakshi, Chairman, NABARD, Mumbai, Mr R. Ramachandran, Chairman and Managing Director, Andhra Bank, Hyderabad and Ms. Renu Challu, Managing Director, State Bank of Hyderabad, Hyderabad, the Chief Minister Mr Kiran Kumar Reddy requested to process the matter further with their Boards and convey concurrence for participating in formation of the NBFC.