Thaindian News

Hyderabad, June 21 (IANS) The central government has decided to reduce the rate of interest for Self-Help Groups (SHGs) from 12 percent to seven percent to bring it on par with crop loans, a central minister said here Tuesday.

Addressing an international meet on microfinance, Environment and Forests Minister Jairam Ramesh said SHGs would now get loans from banks at the same interest rate as crop loans. He also supported the demand for bringing the interest rate further.

Later talking to reporters, the minister said the decision was taken a couple of weeks ago as part of National Rural Livelihood Mission (NRLM) launched by United Progressive Alliance chairperson Sonia Gandhi in Rajasthan.

He said the subsidy on the loans would be borne by the central government.

Stressing the need for regulating microfinance institutions (MFIs), the minister claimed that the central government was working on MFI bill. He hinted that the process may take 12 to 18 months.

Lauding the legislation enacted by Andhra Pradesh government, Ramesh pointed out that the Y.H. Malegam committee appointed by Reserve Bank of India (RBI) supported it.

Earlier, addressing the international summit on “Microfinance and Inclusive Development”, he noted that most of MFIs look upon poverty only as a business, not a “serious business” and are looking only at share prices, balance sheets, bottom lines and foreign institutional investors.

He praised Andhra for being pioneer of SHG movement in the country and assuming the leadership role, accounting for 40 percent of all the bank credit to all SHGs in India.

Andhra Pradesh has one million SHGs with 10 million members. The minister said this achievement was now being replicated in states like Bihar, Uttar Pradesh, Rajasthan and Orissa.

He said while many want bank-linked SHG model of Andhra to succeed, some want it to fail. “There is a constituency out there which says Andhra SHG model is not sustainable and that it is sustainable only through government subsidy,” he averred.

Ramesh, who is a Rajya Sabha member from Andhra Pradesh, suggested that to face this challenge all 1,100 mandal samakhyas or federations of village-level SHGs in the state become financially independent of the government and government subsidies by making a monthly income of Rs.50,000 each.

He also advised SHGs to become self-sustaining and financially independent by looking at growth engines. He wanted them to emulate the example set by their counterparts in Chittoor district through milk procurement. Today 10 percent of the milk supplied in Delhi everyday comes from Chittoor district.

The minister underlined the need for SHGs to offer financial support of the kind and time the borrower wants. He said SHGs should learn a lesson from MFIs who give money for the purpose the borrower wants and at a time when the borrower wants. He pointed out that the market is not ejecting MFIs because they are fulfilling a need which bank-linked SHGs are not in a position to perform.