High interest rates deterrent for micro-finance

March 31st, 2009 - 9:04 pm ICT by IANS  

New Delhi, March 31 (IANS) High interest rates coupled with an uneven spread of micro-financial institutions are among the major reasons for credit still not being available to a sizable portion of the underprivileged, experts said Tuesday.
“There is an uneven spread of the micro-finance movement,” B.P. Vijayendra, chief general manager, Rural Planning and Credit Department of the Reserve Bank of India said.

“Not all states have the same number of micro-finance institutions and moreover interest rates still remain high,” he said while speaking at the national micro-finance conference organised by Sa-Dhan, an organisation representing micro-finance institutions.

Micro-finance refers to the provision of financial services to poor or low-income people, including consumers and the self-employed, living in rural, semi-urban and urban areas.

In India, micro-finance or micro-credit is made available mainly through self-help groups (SHGs).

However, micro-finance interest rates are significantly high considering that this mode of financial assistance is primarily targeted at the underprivileged section of the society.

“Banks or other financial institutions have not been able to bring down interest rates and this is a cause for worry. We need to see how we can resolve this issue,” said Amitabh Verma, joint secretary in the finance ministry’s banking and insurance department.

Interest rates on micro-finance loans are in the broad range of 25-30 percent.

The distribution of micro-finance in India is highly skewed, with a majority of the SHGs being in southern India which enjoy a major chunk of the credit disbursed, according to the panelists at the conference.

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