Govt can’t subsidise individuals: Report

Echoing the suggestions of the Nobel laureate and pioneer of micro-credit in Bangladesh Professor Muhammad Yunus...

Echoing the suggestions of the Nobel laureate and pioneer of micro-credit in Bangladesh Professor Muhammad Yunus, an action research project conducted by the National Institute of Bank Management (NIBM) has recommended the government to stop “any kind of subsidy targeted at individual level”.

The project aims to work towards sustaining the micro-credit led self-employment generation scheme, Swarnajayanti Gram Swarozgar Yojana (SGSY), in rural areas of the country.

The NIBM research, which made an assessment of the Central government’s largest — more than Rs 1,000 crore —micro-finance SGSY scheme, has pointed out several deficiencies in planning and implementation. The report, which includes three years of rigorous field research spread across nine states, says “planning and implementation of SGSY are not satisfactory”.

Story continues below this ad

The report indicates that “subsidy seems to be a major motivation factor” for the self-help groups (SHGs) functioning under the SGSY scheme. It further adds that majority of the SHGs under the scheme have not generated economic surplus from their credit led assets.

Consequently, in a complete contrast to the micro-credit experience in Bangladesh where the recovery rates are as high as 98 per cent, the report points out that the recovery rate in India is barely 42 per cent.

Emphasising the fact that credit to SHGs is not a supply-led but a demand led proposition, the report recommends that credit decisions ‘must’ be left to the banks.

It suggests that the government machinery involved in implementing the scheme must take a developmental role and leave the banks to concentrate on developing and selling appropriate financial services products to SHGs.

Story continues below this ad

However, the report also recommends rigorous monitoring of the banks for their commitment to weaker section credit and mobilisation of micro-savings.

The suggestions of the report stand in complete contrast with the approach of the Rural Development Ministry, which continues to pressurise banks in rural areas to extend enhanced credit to SHGs under SGSY.

The findings of the report were presented at the Central Level Coordination Committee meeting in New Delhi on Tuesday. Dr Raghuvansh Prasad Singh, Minister for Rural Development, urged the banks to extend credit to the SHGs.

The report emphasises the centrality of SHGs in micro-finance led self-employment generation under this scheme and recommends the implementing agencies to devote more time on formation, nurturing and mentoring of SHGs.