'Lending to poor not an impossible proposition'

New Delhi, Apr 3: Giving the example of the Grameen Bank of Bangladesh, an expert at a meet on urban poverty here has called for replicating the model at as many places as possible to provide easy micro cedit to the poor, especially women.

The Grameen Bank is one of the most successful examples of how to empower women economically.

Set up in 1975 by Prof Mohammad Yunus, it had given loan to 6.39 million people, 96 per cent of whom were women, till last year.

It pioneered the concept of formation of self-help groups and lending small loans.

''The Grameen Bank did away with the traditional banking practices by removing the need for collateral and created a banking system based on mutual trust and participation,''says Nandini Y Kapdi, pricipal Director of Audit, Maharashtra in a paper released at the conference on urban poverty here.

The founders of the Grameen Bank started with the premise that the landless peasants need access to credit to launch their own enterprise.

Prof Yunus says that if financial resources could be made available to the poor on reasonable terms and conditions , the millions of small people with their millions of small pursuts can add up to create the biggest development wonder.

It has successfully proved that lending to the poor was not an impossible proposition.

The bank has adopted a mode of operation that reduces riks to the minimum. A bank branch is set up with a branch manager and a number of centre managers. They cover an area of about 15 to 22 villages to familiarise themselves with the local situations.

Groups of five prospective borrowers are formed and in the first stage, only two of them are eligible for and receive a loan. The group is observed for a month to see of the members were conforming to the rules of the bank.

Only if the first two borrowers begin to repay the principal plus interest over a period of six weeks, do the other members of the group become eligible for a loan. Because of these restrictions there is group pressure to keep records clear.

Loans are small, but sufficient to finance micro enterprise like rice-husking, machine repairing, purchase of rickshaw, buying of cows, goats, pottery etc.

The interest rate on all loans is 16 per cent. The repayment is currently 95 per cent.

The Grameen Bank has now expanded its operations to several countries and the model is replicated in most developing countries.

Ms Kapadi says that India too has very sucessful examples of microfinance models.

Microfinance has helped not only the rural poor, but the urban as well.

As the urban areas have expanded, there has been large scale migration of rural population to cities, resulting in an increase in urban poverty.

Consequently, the informal sector developed, wherein the urban poor began to explore possibility of setting up small enterprise, but finance was the main hurdle. It was in this context that extension of the microfinance to the urban poor became a necessity.

In fact, organising the urban poor and finding a linkage with banks became easier in urban areas with better access to banks and microfinancial institutions.

At first a group of 15-20 women come forward to form a self help group. They decide to save small amount and pool them together to help the needy members, either for household necessities or for undertaking a small economic activity. They elect a group leader and mainatin accounts of their transactions.

They also set aside money separately in a deposit with either MFI or a bank. Once these deposits grow, they begin to avail loans from banks against the deposits and offer credit to members at an agreed rate of interest.

Apart from pioneering role of NABARD, several institutions in the private sector have been at the forefront of microfinanace activity, says Ms Kapadi.

Some of these, which include profit and non-profit institutions both, are Samall Industries Development Bank of India(SIDBI), Self-Employed Women's Association(SEWA), Ahemdabad, Marayada(Karnataka), BASIX(Hyderabad), SKS Microfinanace and Working Women's Forum(WWF).

UNI