Microfinance needs rural Ministry146;s backing

z Death and Disability Insurance Aam Aadmi Bima Yojna for the unorganised sector with an allocation of Rs 1,000 crore, targeting 105 million households.

z Branch expansion by RRBs in 80 districts. Increasing loan size under the DRI scheme for weaker section from Rs 6,500 to 15,000 under general loan and Rs 5,000 to 20,000 under housing loan.

z Further, with the introduction of Financial Inclusion fund under NABARD Rs 500 crore for promotion and a special window for technology, it marks much needed attention to the expansion of the sector beyond the existing clients of banks.

z Increase in allocation for Swarnajayanti Gram Swarozgar Yojana from Rs1,200 to 1,800 crore

z Finally introduction of the microfinance bill marks an attempt to enhance greater financial inclusion including expansion of channels of delivery for microfinance. Increasing the emphasis on revival of cooperatives and refinances to cooperatives.

These initiatives, become significant, given the fact that microfinance in India is driven by commercial bank borrowings. As different entities expand their portfolio with borrowed money, the bill will hopefully introduce measures that will lead to increased transparency and uniform reporting norms. In addition, any supervisory oversight, which might arise from the bill, will be helpful in slowly mainstreaming the provision of financial services to the poor.

However, we need to remind ourselves that interventions, to be inclusive, need grant funding. This can be for 8220;promotion of groups, investments in technology back-bones and/or skill building of poor illiterate women8221; as they venture into a new world of management of financial transactions; or to ensure that specially targeted groups, such as minorities get more services. Turning this intent into reality will require investments in self-help groups by other ministries, which have funds for such purposes.

The record, however of such disbursement, leaves much to be desired. Existing data shows that investments in women8217;s groups is as low as Rs 2,500 per Self Help Group that translates into approximately Rs 125 per woman per year. Considering the guidelines provided by the Rural Development Ministry for the promotion of groups including skill building is approximately Rs 3000 per year going up to Rs 12,000 over a three year period, the expenditure, leaves very little for other works, Even under other schemes, where self-help groups are more pronounced, spending is only 3.64 per cent of total disbursement in training and skill building.

What is therefore a point of concern is that though the Finance Ministry initiatives might define and design the plot, other ministries that need to make the investments, need to do much more.

Given the enthusiasm of banks for the first time in lending and being open to lend to the poor, it is important that the other Social Sector Ministries during this year focus on ensuring disbursements of their grants to match the lending speed of banks.