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Simpler Credit Rules on Way for Poor Households

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Proposal includes lending of up to Rs 1 lakh per family without collateral at lower interest rates

The government is redrawing a micro-credit programme to help pull rural households out of poverty. The proposal is to lend up to Rs 1 lakh per family in the next threefive years, with the loans coming collateral-free and with subsidised interest rates.

“We have simplified the process for accessing loans ... We are getting into the details of livelihood each house can undertake so that the money can be lent accordingly,“ said rural development secretary Amarjeet Sinha.

Nearly 8.5 crore poor households identified in the Socio Economic and Caste Census will be linked to the plan by 2019.

The government wants to double bank linkages to lend Rs 60,000 crore per year for creation of livelihood for deprived rural households by 2019. The aim is to reduce their dependence on local money lenders and microfinance companies who charge usurious interest rates as against 11% by banks. Under the new proposal, the interest burden on the borrower is much lower due to subvention.

The rural development ministry has signed a memorandum of understanding with the agriculture and animal husbandry ministry to enable lending to such households for activities including tilling and setting up of poultry farms and goat sheds.

The rural development ministry will provide an interest rate subvention of 4% to make loans available at 7%. Households in 250 backward districts will get an additional interest subvention of 3% on prompt repayment, making their effective interest rate at 4%.

“We want to create diversified livelihood opportunities by providing loans which will help households utilise their resources and skills,“ Sinha added.

The government has, for instance, taken up expansion of dairy activities in several states by collaborating with the National Dairy Development Board to provide better market linkages and bring producer groups together with companies.

In order to expand its credit reach, the ministry is also studying the lending models of different states in rural areas, such as Tamil Nadu's Panchayat Level Federation and Telangana's Stree Nidhi Cooperative which lends to self-help groups.

Rural credit in India raised by selfhelp groups grew 40% in 2015-16 to Rs 30,000 crore. These groups have mobilised credit of about Rs 70,000 crore since they were formed in 2011, to fund creation of social capital in villages that could lift nonfarm jobs.

The Economic Times New-Delhi,19th April 2017

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