Taking a cue from the Centre?s move to set up a separate financing window or a non-banking finance company (NBFC) with a corpus of R500 crore for funding microfinance institutions (MFIs), the Andhra Pradesh government has sent a proposal to the Union government to float a similar NBFC for funding self-help groups (SHGs). The proposed NBFC is expected to charge an interest of 15% as against 24% to 26% charged by private MFIs in the state.
According to principal secretary (rural development) Reddy Subrahmanyam, a feasibility report for the same had already been prepared. ?The proposal has been sent and we are awaiting the Centre?s nod,?? he said, adding that he was hopeful of getting the approval soon.
The proposed NBFC would have both state and central governments as key equity partners besides Mandal Mahila Samakhyas, Andhra Bank, State Bank of India and National Bank for Agriculture and Rural Development (Nabard), he said. It would be floated on the lines of the recommendations submitted by APMAS, a Hyderabad-based capacity building institution for SHGs, and MS Sriram of the Indian Institute of Management in Ahmedabad.
The proposed NBFC may have an initial capital of around R200 crore with contribution coming from equity partners to the tune of R50 crore each, besides other financial institutions.
The feasibility report has pointed out that the SHGs and the banking system are currently not geared to fill the credit gap left by the MFIs in the state, which is estimated to be around R4,000 crore. The report also calls for an independent microfinance NBFC and has recommended that neither the state nor central governments should have representatives on the board. In all, the promoter banks and other institutional investors will have three representatives, while women SGHs will have three representatives on the board.
The state government has also requested the Centre to further reduce the interest rates for SHGs from 7%. The Centre has already reduced them from 12% to 7% (similar to crop loans), but there is a fresh demand to further reduce them to 5%. The state had framed the Microfinance Act in October last year, which has reportedly crippled the MFI activities in the state. Under the new Act, the MFIs have to seek government approval before sanctioning fresh loans to borrowers.