“If we are going to be serious about supporting women’s SHGs, then we need a development finance institution”

Finance Minister P. Chidambaram’s proposal to establish a bank exclusively for women — which he described as the highlight of this year’s budget — may have garnered applause from across party lines in Parliament and could be set up as early as October; but that hasn’t stopped his Cabinet colleague and Rural Development Minister Jairam Ramesh from mooting an alternative proposal. He wants a developmental financial institution (DFI) — instead of a bank — tailored to help women’s self-help groups (SHGs) and promote the financial inclusion agenda. Mr. Ramesh also wants a finger in the pie, suggesting that his own Ministry should jointly supervise the new DFI, along with the Finance Ministry.

In a letter dated March 11, Mr. Ramesh told the Finance Minister that his budget proposal of a new public sector bank for women with Rs.1,000 crore of equity would actually be “limiting in nature for the objectives of broadening bank-linkage to women SHGs.” It would be forced to re-invent the wheel, by having to create its own branch network, since it would not be able to leverage the existing network of around 80,000 bank branches across the country, including almost 50,000 rural and semi-urban branches.

His letter has reportedly been acknowledged by the Finance Ministry, which said its experts deliberating on the shape of the new bank would take his suggestions into consideration.

So far, only SHGs in the southern States have benefited from bank linkages, with 80 per cent of lending going to what Mr. Ramesh has called the “gang of four” — Andhra Pradesh, Tamil Nadu, Karnataka and Kerala. The National Rural Livelihoods Mission (NRLM), now called Aajeevika, projects that 60 lakh households SHGs, involving seven crore households, will require a credit of Rs. 40,000 crore per year for the next five years and a whopping Rs. 100,000 crore per year for five years after that. It is these needs that a new DFI could meet, claims Mr. Ramesh.

“If we are going to be serious about supporting women’s SHGs, then we need a development finance institution, not a bank,” he says.

His letter points out the political background to the Finance Minister’s budget proposal; it was in fulfilment of the Congress party’s pledge made in its Jaipur declaration after the January 2012 chintan shivir to “build the capacity of women SHGs.” That declaration named Indira Gandhi, who set up a similar financial institution — NABARD — to stimulate agriculture and rural development, and asserted that “now is the time to establish a dedicated National Bank for Women to provide financial services to women in general and women SHGs in particular.”

Mr. Ramesh’s letter also invokes the current leader of the Congress party in suggesting that his DFI proposal would “allow us to successfully implement Aajeevika — which as you know, is one of the flagship programmes of the UPA government launched by the UPA chairperson from Banswara in June 2011.”

Of course, while Mr. Chidambaram’s proposal for a women’s bank can be implemented by October 2013, well in time to tom-tom before a general election where women’s issues could be a campaign theme, a DFI would require the long and tedious process of enacting a legislation in Parliament.

For one thing, the SIDBI model would allow joint supervision by the Rural Development Ministry. For another, it would provide developmental as well as financial support to the SHG ecosystem