Micro Finance Scheme

Introduction:

The people in North East India are predominantly in the farming sector. For trading and production purposes, small borrowers still depend on the local moneylenders whose interest rates are normally very high. It becomes rather heavy on the borrowers who are poor, illiterate and do not understand the intricacies involved in formal lending. Therefore, they do not approach banks despite their needs. 

With the help of Non Government Organisation (NGOs), individuals can be organised under Self Help Groups (SHGs) for the purpose of on-lending from financial institutions. Also, linkages can be established for networking with these SHGs with the formal banking sector.

Despite the vast expansion of the formal credit system in the country, it has not been able to cover adequately the need of small loan requirement of the rural poor. The banks have not been involved much in lending of this kind as it encompasses high risk & high transaction cost and too many small borrowers. Faced with such constraints, the unreached small borrowers can be helped by NEDFi through the provision of small loan through intermediaries. It will lead to creation of informal savings and help in inculcating the habit of borrowing and repaying.

NEDFi’s Objective

There is a need to target small and mid size agriculturist, self employed personnel, entrepreneur; not so much as a measure of poverty alleviation but as a measure of productivity/efficiency building mechanism to support the greater goal of overall development of the region.

Hence, NEDFi would look towards developing & supporting NGOs/Voluntary Agencies (VA) with good track record for on-lending to the "needy" for taking up productive activities. The program would envisage extending financial assistance to NGOs/VAs for on-lending to the people for self-employment projects that generate income, allowing them to care for themselves and the families.

The Proposal:

The approach would focus on identifying micro finance institute (MFI) as long tern partners and providing credit support for their micro credit initiatives. The MFIs may be well-organised Non Government Organisation (NGO) with good networks or other micro finance organisations. The MFIs would be selected on the basis of their credibility, track record, professional expertise and management practices, credit rating, field visits etc.

Operational Strategy:

The approach to assistance under NMFS will be different from that of conventional lending under other programs of NEDFi in as much lending decisions under NMFS will be governed by the track record, capabilities of reach of MFIs rather than the security offered and promoter’s stake.

Operational Modalities:

The operational modalities of the NMFS will be as follows:

Eligible Borrower

Well managed NGOs/VAs/Cooperative Societies, Village Councils  that::

• are in existence for at least 3 years
• have experience in developing SHG
• have good track record
• have proper system of book keeping
• adequate financial management ability
• well-organised SHGs engaged in income generating activities.

Terms:

• Minimum amount that can be given to a SHG is Rs 20 thousand and maximum up to Rs. 4 lakh.

• NEDFi would lend the amount at Prime Lending Rate (PLR) + 0.5 % (administrative charge).

• NGOs to lend it to the SHGs/individuals at a rate determined by them after discussing with NEDFi. In no case more than 4% above NEDFi’s PLR.

• Repayment period by the NGO would depend on the projects. Maximum period is 5 years including a reasonable moratorium period. The repayment period by the ultimate borrower will be 1-3 years.

• Some feasibility study of the projects sent by the SHGs should be done by the NGOs before being accepted by NEDFi. The individual projects would be prepared by the NGOs with details.

• NEDFi would help SHGs, NGOs in identifying activities and in conducting seminars, trainings, workshops etc.

• Before application, the NGO will submit information related to operation in the application format. Click here for the format.

• After information submitted to NEDFi, NGO will apply as per NEDFi  application format.

• NGO's to please use checklist.

Activities to be financed:

• Income generation through agriculture (including farm implements).
• Other farming activities mainly : Piggery, Poultry, Fishery, Dairy etc.
• Micro industries.
• Service Sector including transportation etc.

Ultimate Target Group :

• Farmers - Petty Traders
• Women - Youth
• Capacity Building of NGOs

Documentation:

• Loan Agreement.
• Deed of Hypothecation.
• Promissory Note.
• Resolution of executive body accepting the terms and conditions for availing the loan.

Security:

• Hypothecation of all the movable assets of the NGO.
• Promissory note from the NGO.