Union Bank throws gauntlet with 10% microfinance loans……KV Ramana
At a time when Andhra Pradesh, one of the leading markets for microfinance in the country, is struggling to rein in the microfinance institutions(MFIs) resorting to rogue practices, the state-owned Union Bank of India has unveiled another lending model as an alternative to MFIs.
The bank would charge 10% interest on these loans, while the microfinanciers are charging about 24% on an average.
Union Bank has decided to bridge the gap in fund requirement at the village level, particularly by the women members of self-help groups, by offering loans in addition to the regular bank linkage.
The bank will depend on the Mandal Mahila Samakhyas for lending the money.
Its not that all self-help groups (SHGs) get adequate finance from the banking system. This is the reason the members of the SHGs are being driven to take loans from MFIs. We have decided to refinance the Mandal Mahila Samakhyas so that the members can meet their additional funding needs. We will focus on addressing the resultant amount of what has not been met the banks, M V Nair, Union Banks chairman and managing director, said.
Nair said funding would be provided to 20 Mahila Mandal Samakhyas initially and based on its success it would be extending to other.
On Monday, the bank released Rs 10 crore towards the initial round of funding and each Mahila Mandal Samakhyas selected in the first phase would get Rs 50 lakh from the bank.
“The MFI sector is at an evolving stage. When an operator operates without proper regulation, there are certain concerns. The ordinance (on microfinance institutiosn) in AP tried to bring in some discipline, which is very positive on longterm basis. The primary concern is about over charging, overextension of loan much larger than the borrower’s ability to repay. Coercion is the other issue,” Nair said.
However, he said that the microfinanciers had played a major role in reaching out to the borrowers and meeting their requirements. “Once the Malegam committee (constituted by the RBI to look into the microfinancier issue) report comes out, there will be a proper development of the sector,” he said.
Union Bank has so far lent about Rs 291 crore to 45 microfinanciers across the country. With in AP, the bank has an exposure of about Rs 90 crore in the sector through 15 microfinanciers.
“There is no major risk at this point to our porfolio. I am sure the microfinanciers will be able to come out of the issues they are facing at this point,” he said.