Executive DirectorKudumbashree

Interest Subsidy, JLG-Collective Farming

and Financial Literacy

Interest Subsidy Scheme

Rate of interest is deregulated

• At present, loans up to Rs.2 Lakhs carry the prescription of not exceeding the Benchmark Prime Lending Rate (BPLR) and on the loans above Rs.2 Lakhs, banks are free to determine the rate of interest

• Commercial banks are free to decide the lending rate, and they may offer loans at below BPLR to exporters or other creditworthy borrowers

• There is no cap on BPLR by RBI• Kudumbashree NHGs are getting loans at 12-15 % • Whereas NGOs and MFI/NBFCs are availing

cheaper credit at 8-10 %

Variation of Interest Rate

• Interest rate are different and varies from Bank to Bank

• Even interest rate of a Bank may not uniform cutting across all branches and geographical regions

• Whether a NHG is best performing or not there is no change in interest rate

• Kudumbashree NHGs are at disadvantage compared to groups in other states i.e. Andhra Pradesh which has been subsidizing interest cost and groups are availing credit at 3 % p.a.

Interest Subsidy Scheme

• Kudumbashree NHGs are left between devil (Money lender) and deep sea (Banks)

• In this context, it is absolute necessary to mitigate hardship and provide relief in the form of interest subsidy to NHGs promoted by Kudumbashree.

• Standardized the Interest rate up to Rs. 1 lakh

• Partial Interest Subsidization up to 5%

JLG of Tenant Farmers

Collective Farming – JLG Groups• Absolute necessary for Increasing

cultivated area under paddy and vegetables

• Food security is important for a state like Kerala which is consumption state rather than production

• Collective farming is inevitable in the context of ever increasing cost of production in agriculture and monetization of economy

• Kudumbashree is actively promoting women tenants-collective farming

Collective Farming – JLG Groups

• Banks are not willing to provide loans to LLF groups as they are not approved as eligible borrower as per NABARD guidlines

• New NABARD-JLG–Tenant-Farmers-circular provides opportunity for Kudumbashree

• All LLF groups need to be brought under JLG of tenant farmers so that Kudumbashree units become eligible borrowers

Financial Literacy Campaign

Financial Literacy

• NHGs do not know, – what is the interest rate of their loan ?– How much is the EMI ?– How the default would affect them ?– What s the penal interest ?– How much is the penal interest ?– Importance of receipt for Bank

payment ?– How much loan amount they are

eligible• They are not aware of other terms

and conditions of Bank loans

Financial Management

– Loan amount to member linked to thrift – Loan graduation i.e. First loan equivalent

to Thrift, second loan amount may be twice the thrift, third loan may be thrice the thrift amount and the ratio of loan amount and thrift may be capped at 4:1

– Importance of retaining thrift and avoiding withdrawal

– Importance of proper books and timely updation of the registers

Banking Ombudsmen

• What are the remedies possible for the aggrieved group

– NHGs don’t know Banking Ombudsmen Scheme – What is the Fair practice code of –whether banks

adhered to Fair practice code or not

• Non-Observance of RBI Directives– With regards to Interest rate– Loan application – rejecting without valid

reasons– Delays in sanction, disbursement-prescribed

time schedule for disposal of loan applications

Banking Ombudsmen

• Eligible loan amount proportionate to thrift (e.g.: 4:1)

• communication gap in case of floating interest rate or change in terms and conditions of loan etc

• Various service charges a bank can levy