The finance ministry is pulling out all stops to further financial inclusion. The ministry has asked banks to tie up with NGOs as business correspondents in a pilot project to lend to self help groups (SHG). As a result lending rate for SHGs may go up, reports CNBC-TV18’s Gopika Gopakumar.
The finance ministry is looking at newer ways for financial inclusions. The ministry has proposed a pilot project where by banks will tie up with NGOs to offer help to SHGs. As business correspondents, NGOs will be responsible for borrowers’ accounts and maintaining recovery of loans. In return NGOs will get a margin of 6-7% for offering their services.
Banks, therefore will have to offer loans to SHGs at a higher interest of 18% as against the current 14%. Separately, banks have been asked to convert some of their term loans into cash-credit facility for SHGs. The cash-credit facility will act as a running account for an entire group and individual borrowers can avail their loans when required.
However, bankers are worried that this may hit the repayment culture among the SHGs because under the cash-credit facility, borrowers need not pay the entire loan amount but only service the interest on a monthly basis.
(AVAILABLE FROM CNBC TV-18)
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