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Updated: March 8, 2011 03:18 IST

State out to shield women from Micro Finance Institutions

Ramya Kannan
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“We hit upon Panchayat-Level Federations as an antidote to the MFIs”

The women of Tamil Nadu are no exception to the exploitative reign of Micro Finance Institutions (MFI) and, in an attempt to bring relief to several lakh women thus trapped, the State is channelling funds through banks to them.

The Tamil Nadu solution to the MFI crisis is to establish community-level federations of women. The key unit is the Panchayat Level Federation, which is a banding of several groups of women who give a plan for bulk loan.

The PLF will guarantee repayment, monitor if the funds are being used for the right tasks, and can even blacklist certain groups within the community for non-payment, K. Gopal, managing director, Tamil Nadu Corporation for Development of Women, says.

“We hit upon the PLF as an antidote to the MFIs who themselves borrow from banks in the first place. There have been complaints from all over the State from women who claim the MFIs which granted them loans are charging usurious interest rates. The women who are also unable to pay are threatened and shamed if repayment is delayed,” Dr. Gopal says.

In some instances, complaints have been filed under the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003 against usurious MFIs, he adds.

Pushpalatha, SHG member in Udumalpet, says another lady member, who was harassed by an MFI, threatened to commit suicide. “The rates of interest are high and when the women are unable to pay, they send rowdies home. We even represented to the Collector about this,” she says. MFIs are even known to hire middlemen to identify families that are in need of a loan in rural areas.

Through the PLF each SHG gets a revolving fund of Rs.60,000 (inclusive of a government subsidy of Rs.10,000) is provided to every eligible group after a credit rating is done. After six months, the group qualifies for economic assistance and a government subsidy of upto Rs.1.25 lakh is granted, the rest coming from the bank on 1:3 ratio of credit. Repeat loans and direct loans are then provided by banks.

Repayment continues to be an issue for the micro credit system in the State. However, Tamil Nadu is among the better performers when government is oiling the wheels. The average recovery, as per a recent survey, was upto 90 per cent, and at worst, about 70 per cent, Dr. Gopal says.

The government is in touch with the State Level Bankers' Committee, involving them closely with the issue of extending credit to SHGs and addressing concerns about repayment, Dr. Gopal explains. Individual loans that are given to address education, medical, nutritional and social components have the poorest recovery rates, and are the key targets for MFIs too.

In the process, the TNCDW has also initiated discussions with the State Level Bankers' Committees, urging them not to issue loans to MFIs; or at least set in place additional conditions. While talks are on to resolve the issue and a decision remains pending, a representative of the Tamil Nadu SLBC says that banks also clearly prefer to deal directly with the people, rather than through middlemen.

However, the TNCDW is trying to bring facilitators into the cycle to act as ‘bank mitras' and up the recovery rates. “Sometimes loans turn bad debt because bankers also do not follow up. These mitras will be deployed to persuade the women to repay and act as a link between the banks and the SHG women.

Keywords: MFImicro finance

The initiative by Tamil Nadu Corporation for the Development of women, (TNCDW) to establish Panchayat Level Federations (PLFs) and place certain amount in the hands of these PLFs is a bold step. This 'welcome' step will ensure ownership of Micro Finance in the hands people rather than private individuals owing Micro Finance. Registered bodies like the PLF should be given tax exemption by the Income Tax department. Even the process of registering these peoples Institutions with Income Tax department for 12A and 80G should be made easy. This would help the rural women to operate the Micro Finance without any legal hurdle. Though these people managed Institutions charge interest rate / service costs, the entire income is used for the welfare of the members. Therefore, these PLFs or other similar Community Based Organisation (CBOs), which are registered under the society Registration Act should be treated as people-owned Micro Finance Institution, like the Andhra Pradesh Mutually Aided Co-operative Societies. In this context, it may be of some good news to the readers, that just like the Tamil Nadu Corporation for Development of Women floated the idea of PLF, in Tamil Nadu, as well in other states, there are similar experiments where NGOs motivated SHGs members coming from the particular cluster of villages, form their own Community Based Organisation (CBOs). Such Organisations are also given MF grant to fully owned, controlled and managed by these CBOs representatives. Even today the hindu (Trichy Edition Supplement) carried a News and an advertisement item, where one state level NGO with the help 20 rural based NGOs promoted 18 Community Based Organisation, and, in total, placed about ` 193 lakhs as Micro Finance funds with these CBOs. Such initiatives by NGOs / Companies / private social minded people need to be encouraged because this Micro Finance is fully owned by the people. These CBOs in the initial period may face few teething troubles, but once the concept is fully understand, this approach of promoting Community Based Organisations like PLFs and they managing Micro Finance, on their own, will bring rich rewards to the rural poor who are now under the clutches of Micro Finance Institutions.

from:  R. Bhakther Solomon
Posted on: Mar 8, 2011 at 15:42 IST
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