Microcredit catching up with people
Banks and micro-finance institutions (MFIs) are now offering credit to community-based projects like provision of clean water, common energy systems and public sanitation facilities.
By R Srividhya, TNN |
HYDERABAD: Microcredit in India appears to be moving up the value chain. From being a livelihood enhancing finance mechanism, it has now evolved to the next phase where people whose livelihood needs are met take credit for basic infrastructure needs like water, sanitation and housing.
Banks and micro-finance institutions (MFIs) are now offering credit to community-based projects like provision of clean water, common energy systems and public sanitation facilities.
While there are millions of people in the country who need microcredit to earn their livelihood, there is also an increase in the number of people who realise the need for such basic facilities and are willing to take credit for the same, say industry experts.
“The first phase of microfinance was for income generating activities like providing credit for cattle, grocery shops and to small farmers. Today with strong community-based structures, it is possible to give credit to groups for such social infrastructure projects, which are not income generating”, asserts SKS Microfinance director Sitaram Rao.
Basix microfinance for instance is undertaking pilot studies in Madhya Pradesh and Orissa to offer credit for water and sanitation facilities. Credit will be provided for projects like building lavatories, fixing drainage systems or connecting water pipes, says Basix CEO N V Ramana.
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New Delhi-based Sa-Dhan — the association of MFIs — is also in talks with housing finance companies to provide credit for low-cost housing facilities in Tamil Nadu and Andhra Pradesh. US-based WaterHealth International recently entered into an agreement with Naandi Foundation to set up central water treatment systems, which will be funded by both villagers and ICICI Bank.
“The biggest challenge would be to convince people to pay for those services which were earlier available for free. Increasingly people also realise that when they pay for water, anyway during times of shortage, taking credit for a central water treatment system will be a cheaper and reliable option in the long run”, says Naandi Foundation CEO Manoj Kumar.
The issue also raises uncomfortable questions on a possible credit trap these might tend to be, considering the mess that some MFIs have got themselves into in Andhra Pradesh for allegedly charging high interests rates and harsh loan recovery methods. “
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As MFIs begin to offer more and more services through common channels, their operating costs will go down resulting in lower interest rates”, asserts Mr N V Ramana. However, not all community-led organisations are mature enough to handle such projects.“There is bound to be corruption and communities have to be intelligent to handle them”, cautions Mr Rao.
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