The Hindu : Tamil Nadu / Chennai News : Affordable interest rates vital to poverty reduction: experts

Online edition of India's National Newspaper
Thursday, Jul 20, 2006

Tamil Nadu

Tamil Nadu - Chennai

Affordable interest rates vital to poverty reduction: experts

Staff reporter

"Some micro-finance institutions charging over 20 per cent"

CHENNAI: Affordable interest rates and mentoring are the key services that micro-finance institutions must provide to spearhead poverty reduction, NABARD Executive Director R. Balakrishnan said on Tuesday.

At the inauguration of a conference on advancing the link between banks and self-help groups, he said some institutions defeated the purpose of lending small loans to the poor, charging exorbitant rates. A study by the Reserve Bank of India had shown that some micro-finance institutions were charging high interest (over 20 per cent), though they did not provide the required `hand-holding' and business facilitation services for SHGs.

"This kind of cannibalism would not only kill the self-help groups but, eventually, the micro-finance institutions themselves," he said.

Mr. Balakrishnan was not in favour of cash subsidies to support the micro-finance institutions and SHGs. Any government grant could be used to set up common infrastructure for the poor, he said. More private banks should step into the development sector.

Use IT

C. S. Murthy, Chief General Manager (in charge), RBI's Rural Planning and Credit Department, urged the micro-finance institutions to use information technology to reach out to the rural poor.

Just as urban banks were offering a range of services, the MFIs should help people aspire for better lives, he said.

M. P. Vaismalai, chairperson of the International Network of Alternative Financial Institutions (INAFI) India, called for fair practices in micro-credit. The institutions need to give importance to saving.

A micro-finance bank forum to share information and best practices was launched at the conference, organised by the INAFI.

About 15 banks participated. To join the forum, call 0452-2300490.

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