CHENNAI: S Parimala of Saligramam can count herself lucky. She is part of a SHG (self-help group) that engages in glass and emboss painting. Her SHG christened Lucky was recently given a second loan of Rs 3 lakh after the group successfully repaid its first Rs 1 lakh loan it had taken from the bank in EMIs of Rs 10,600 spread over 10 months.
Nevertheless, Parimala is upset because while the group had asked for a loan of Rs 5 lakh, the bank lent her only Rs 3 lakh. When it comes to borrowing money, the poor, especially the rural folks, are at the mercy of money lenders. With the arrival of micro finance, MFIs (micro finance institutions) and other NBFCs began lending to the poor.
Of late, banks have discovered that lending to the poor is indeed profitable. Banks either directly lend to the borrowers through their micro finance branches or they team up with MFIs and other NGOs who help in identifying and grouping the members into various SHGs who are then given finance. Interest charged on such loans is usually at sub prime lending rates. In the first phase, the average loan
size is usually below Rs 10,000. Also, banks normally encourage SHGs to first open a savings bank account before giving credit.
"We initially observe the saving patterns of the group, how they save, lend and distribute money amongst themselves before giving them credit," says Manohara Raj, senior vice-president, HDFC Bank.So much so that many banks now have exclusive branches that deal only in micro finance. Indian Bank, which started its microfinance initiatives from its Chetpet branch in Chennai in 2005, has added 11 more micro finance branches to its network in India.
This year, the bank plans to open 13 micro finance branches. "It's an established fact that by being part of self help group, women are able to carry out economic activity more effectively.
Also, they need not borrow money at usurious rates of interest from money lender any longer," says MS Sundara Rajan, CMD, Indian Bank.
HDFC Bank is strengthening micro finance business. It has four micro finance branches located in interiors of Tamil Nadu. Nearly 15% of bank's micro finance business are generated from four branches. It is also looking at opening a few more micro finance branches this year.
Category: Payday loans