Financial Inclusion in Focus in India, but Bank Loans to Micro Sector Fall 5.5%

Tuesday, March 17, 2015

State-run banks may have created a record with opening of Jan Dhan accounts, but when it comes to lending to the poor, they are actually faltering. Bank loans to the micro sector, the target group of the government’s financial inclusion drive and Pradhan Mantri Jan Dhan Yojana (PMJDY), have fallen 5.5% over the last 14 months, according to data from the Reserve Bank of India (RBI).

There is no lack of demand. In fact, micro finance companies, which are specialists in lending to the poor, grew their books by over 50% last year, data compiled by Microfinance Institutions Network (MFIN) showed.

Micro credit involves very small loans of up to Rs 25,000 to poor borrowers, who lack collateral and steady employment.

This trend has again highlighted that commercial banks are perhaps not the right vehicle for credit delivery at the grassroots despite all their modern technological innovations. “I am yet to see a main stream bank doing micro lending on its own profitably,” said Alok Misra, chief executive at MicroCredit Ratings International. “The structure of banks is not suited to do relationship delivery requiring frequent personal in teractions.”

Banks are instead happily lending to microfinance institutions (MFIs) to meet their priority sector commitments.

RBI data revealed that outstanding micro credit portfolio of all banks taken together dipped to Rs 17,200 crore as on January 23 from Rs 18,200 crore in November 2013. The fall in outstanding numbers also reflects the slowing down of self-help group-bank linkage programme.

Source: The Economic Times (link opens in a new window)

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banking, financial inclusion, lending, microcredit, microfinance