Andhra Pradesh, once the home to micro finance companies, plans to set up a non-banking finance company (NBFC) to lend at subsidised rates to self-help groups (SHGs) with funds from the central government that will end hopes of revival of profit-seeking micro lenders in the state.
The state government, which crippled the micro finance industry with a law aimed at protecting borrowers, will access SHGs with funds to fill the void left by the near exit of micro finance companies. "We are planning to set up an NBFC that can offer credit to SHGs at a little over 3% interest rate. Already, state offers subsidised lending at 3% to SHGs through banking linkage under 'pavala vaddi' (affordable interest) scheme. Our effort is to strengthen this and we have asked the Union rural development ministry for equity participation,'' said chief minister N Kiran Kumar Reddy, who has sought Rs 100-crore equity from the central government.
The Union government will offer credit to SHGs at 7% interest rate through public sector banks. This is expected to help Andhra Pradesh, which is planning to strengthen the SHGbank linkage to fill the credit gap arise out of the crisis in the microfinance sector. "The Centre has taken a decision to offer credit to SHGs at the same rate as that of crop loan to farmers, which is at 7%. This is part of the National Rural Livelihood Mission and the Centre would bear the subsidy burden,'' said environment & forests minister Jairam Ramesh. This will help Andhra Pradesh, which houses 15% of SHGs in the country.
The state has about one million SHGs and 46% of the national bank credit to SHGs goes to Andhra Pradesh. Besides, the state has been facing a crisis in the microfinance sector resulting in a gap in demand and supply of credit in rural areas. The MFI segment has been reeling under pressure in the state since October last year after the Andhra Pradesh government decided to regulate its activities in the state. Andhra Pradesh's tough stand hand hampered MFIs' business in Andhra Pradesh, where the loan recovery rate has fallen to about 10% from over 95% in early 2010.
This led to banks denying fresh loans to MFIs. The Centre, as part of the Budget outlay, has proposed a separate financing window for SHGs with an initial corpus of Rs 500 crore. The state is looking at getting money from this. The state may also pool in Rs 50 -crore initial equity besides getting Rs 50 crore each from Nabard and SHG federations. According to Mr Reddy, the NBFC would serve the secondary credit needs of rural poor, who have already received a loan from SHGs.
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