india

Updated: Nov 19, 2017 23:46 IST

India’s northern and eastern states are slowly but steadily increasing their share of bank credit for women self-help groups (SHGs), a sector traditionally dominated by five southern states, indicating a new momentum in the country’s rural economy.

In the last four years, there was a 28 percentage-point rise in the share of banks loans for northern and eastern states as the government backed rural livelihood projects to create alternative sources of income in farming communities.

Bank credit acts as the lifeline for India’s 3.8 million SHGs that come under the National Rural Livelihood Mission (NRLM). Poor rural women form these groups to launch a number of businesses, such as poultries, dairies, fisheries, seed banks, pottery units, canteens and food processing units.

The Centre supports these activities through an interest subvention scheme that allows SHGs to acquire loans at 7% annual interest. In 250 districts, the government offers an additional subvention of 3% on early payments. As many as 216 of these districts fall outside southern India.

Vijay Mahajan, CEO of the BASIX Social Enterprise Group, said: “The central, north and eastern regions have always been laggards when it comes to financial inclusion schemes. But microfinance institutes (MFIs) have now slowed to a crawl in South India while losing space to banks in other parts of the country.”

West Bengal and Bihar bag the maximum loans in the upper half of India. Bihar registered 600% growth since 2012-13 while Bengal saw a 660% rise in the same period. The total credit in these two states stood at Rs 4,700 crore in 2016-17.

“The quantum of loans is increasing every year, and since 2013-14, the share of five South Indian states has been slowly but steadily declining to the advantage of the rest of India,” said Union rural development secretary Amarjeet Sinha. “The rest of India has tremendous growth potential. Andhra Pradesh — with the largest network of SHGs — alone accounted for more than 25% of total bank loans in 2016-17.”

Though economists also interpret the trend as a “good beginning”, they say the northern and eastern Indian states have miles to go before they realise the full potential of micro-finance. “There are two forces at work. The southern states’ growth has slowed down, while other parts of India are now eager to grab the opportunity. This is also a result of the government’s policy of interest subvention,” said Abhirup Sarkar, professor of economics with the Indian Statistical Institute.

Government sources attribute the sudden fall of southern states in credit share during 2016-17 to the Centre’s renewed focus on 10 states — which accounted for 82% poor households in the Socio-Economic Caste Census-2011. This list includes Rajasthan, Madhya Pradesh, Uttar Pradesh, Bihar, West Bengal, Chhattisgarh and Jharkhand.

The increasing dependency on bank loans also coincides with the enactment of a microfinance law in Andhra Pradesh to stop the alleged harassment of borrowers through coercive loan-recovery practices. The law imposed many restrictions on MFIs, and eventually, the asset base of the microfinance industry shrank.

A similar bill to control MFIs has also been under Parliament’s consideration since the UPA era. The proposed bill caps interest rates and profit margins, among other things, and gives regulatory powers to the National Bank for Agriculture and Rural Development.

Another factor is the NRLM, which was initiated in 2011 to take over from the Swarnjayanti Gram Swarozgar Yojana. “Both the schemes ran parallel in the transition period of the first two years. The NRLM fully took off from April 1, 2013,” said NRLM joint secretary Atal Dullo.

In 2015, the Narendra Modi government renamed the NRLM after BJP’s ideological icon Deen Dayal Upadhyay, providing much-needed political push to a programme that has the potential to benefit millions of poor rural households.