FINANCIAL INCLUSION

FINANCIAL INCLUSION

 Introduction

Ministry of Finance, Government of India and the Reserve Bank of India stipulate that all public sector and private banks in India should give 40% of all their loans to the poor and middle sections of society under the Priority Sector Lending Program . Of this 1% of the loans should be given to petty entrepreneurs below poverty line under the DRI (Differential Rate of Interest) Scheme that was introduced by the Government of India in 1974. The DRI loans are up to Rs. 15,000 at a nominal rate of interest of only 4 % per annum. But all banks during the past 44 years have given only 0.02% under the DRI Scheme instead of 1% as stipulated. To address such exclusion of the poor, COVA initiated the Financial Inclusion Project in 2014 in association with State Bank of Hyderabad and Syndicate Bank to enable poor and lower middle classes to access Bank Loans under the DRI and MUDRA Schemes.

Financial Inclusion Program

COVA started the Financial Inclusion Project in 2014. The objective of the project was to provide financial literacy to the people to enable them to directly access loans from banks. It is the right of each citizen as stipulated by the Government of India and Reserve Bank of India under various schemes like DRI (Differential Rate of Interest) Loans, Priority Sector Lending, and Prime Minister’s 15-Point Program for Minorities and MUDRA, etc.

COVA started a Pilot in Hyderabad city with 15 branches from State Bank of Hyderabad in Hyderabad and Karimnagar and Syndicate Bank joining in 2015 and COVA has been able to secure loans for 1097 persons from both these banks with disbursal of loans amounting to ₹ 2.6 crores. The number of loans sanctioned varied from case to case ranging from ₹ 15,000.00 to ₹ 100,000.00. The beneficiaries being from different sections of society. The following table displays the community diversity of the project.

Repayment rates were remarkable at 99.6 % but demonetization in November 2016 brought it down a little.

COVA facilitates the poor & middle classes to access bank loans and ensures proper repayment through the following Seven Step Process:

1. Identification of Partner Organization
2. Community Meetings
3. Identification of credible borrowers
4. Group Formation
5. Facilitating preparation of forms and documents
6. Submission in Banks and release of loans
7. Ensuring Repayments

Impact

The program succeeded in helping 1079 borrowers in Hyderabad and Karimnagar to access loans worth Rs. 2.6 Crores with a repayment percentage of 99.7% till September-October 2016.

After demonetization in November 2016 and merger of State Bank of Hyderabad with State Bank of India in May 2017, the repayment process suffered to touch 96.5%.

Objective

The basic objective of the project revolve around imparting financial literacy to women and men from the marginalized and minorities engaged in petty businesses and micro entrepreneurship so as to enable them to obtain loans from banks. The project also focuses on the repayment of the loans taken so that further loans can be secured.

Activities

1. The activities undertaken were outreach to communities in association with partner NGOs and CSOs to conduct community Training on financial literacy in the city of Hyderabad. We ensured that there was adequate participation from different communities and the project attained gender parity.
2. The credibility of the business of the borrower was the key parameter to identify the beneficiary, further the financial inclusion team assisted the beneficiary to complete the process of filing the application form by ensuring all required documents are obtained and attached.
3. A group of 5-6 members was formed as group guarantee to facilitate easy and flawless approval of loans and to facilitate follow up for repayments.
4. Extensive follow up with the respective banks in the area was taken up to ensure the loans are released in time.

The borrowers were followed up on a regular basis to ensure that the loans are repaid properly. The borrowers who have paid their earlier loans were facilitated to obtain next loans with enhanced credit limits.

Proposed Programs for 2021-22

1. Number of Bank Loans to be accessed – 100 at Rs 30,000 per loan on average amounting to Rs. 3 crores
2. Ensuring proper repayment of loans already taken by 1000 borrowers — Rs. 62,28,500
3. Enable the poor to access OD of Rs. 5000 from banks – 1000 persons – Rs. 50 Lakhs
4. Total amount of Loans to be serviced — Rs. 4,12,28,500
5. Financial Inclusion  Awareness Meetings in Localities-60
6. 25 Participants in  each Awareness  Meetings-1500 Entrepreneurs
7. Budget for the Year 2018- 27 Lakhs
8. Cost per loan accesses or serviced — Rs. 900
9. Return on Investment — 1:15

Case Studies: Financial Inclusion

The loan amount of Rs: 50,000/- which Anand Biradar took in December 2018 was spent on rations, cylinder and on expanding his business space by taking a small shop on rent to enable his costumers to sit and eat. Anand says that “Because of the investment I could earn more money on my business since I am accommodating more people to sit and eat food.” He also says that he could contribute more money to his joint family since he is earning more. Anand Biradar was born in 1958 is a resident of Dhoolpet, he started Pani Puri eatery business at Puranapool in the year 2000 with basic investment and facilities. COVA facilitated a loan to Anand through SBI in 2016 and then again in 2018 because of his regular repayment of installments. In 2016 the first loan amount of Rs:15,000/- which he got was spent on replacing his old Pani Puri vehicle.

Manjula Raikot. 44 years, obtained loans three times from SBI through COVA since 2015.  The first loan was for Rs: 15,000/- and due to regular repayments the bank sanctioned two more loans of Rs. 30,000 in the following years. With the loan money they expanded the business. Her recent loan amount of Rs: 30,000/- is also invested in bringing more footwear brands from the market to sell in their shop because the handmade footwear what they make wear not sold much.

Manjula says “If we take money from the money lenders they charge a lot of interest, but when we take bank loan the interest rate is very low which is helping us to save some money for the household and for the education of my 3 children.”

Revuri Vinod Kumar is an enthusiastic businessperson and he has been trying for a bank loan from last 1 and ½ year to buy more raw material and expand his Kirana and General Store but he failed in availing loan, but now with COVA’s facilitation he got bank loan sanctioned. Before Vinod used to take raw material like oil and rice from wholesale shops and used to pay money later after he sold what he took from them, now after he was sanctioned a loan of Rs: 50,000/- from SBI bank in December 2018, he is buying raw material with the net amount and also expanded his business. Vinod is planning to apply for the loan again as soon as he completes the repayment. Vinod was born in 1971 is a resident of Puranapool and runs his Kirana and General Store business in the same location.

Imran had been running a business of printing for a decade when he came across the loan facility for micro and nano entrepreneurs. He got in touch with COVA and was guided to apply and receive a loan for INR 15,000 in 2014. He repaid the loan within 30 months and took another loan for INR 1,50,000 to buy an advanced printing machine. The loans helped him expand his business and gain more orders of printing. He wishes to develop his business further by using the printing machine with better resolution and printing speed.