Micro Credit

Microcredit is the small credit given to poor and comes under the micro finance services. The commercial banks are encouraged by the RBI for expansion of the microcredit in India.

• The Microcredit has been defined as loan amount not exceeding ` 50,000 per borrower provided by the banks through a SHG (Self Help Group) or JLG (Joint Liability Group) mechanism or by a NBFC (Non Banking Financial Company) or MFI Microfinance Institution.

Reserve bank of India encourages the commercial banks to expand the coverage of micro finance in India.

• A pilot project for purveying micro credit by linking Self-Help Groups (SHGs) with banks was launched by NABARD in 1991-92. RBI had then advised commercial banks to actively participate in this linkage programme. The scheme has since been extended to RRBs and co-operative banks.
• Government of India permits FDI in ‘Micro Credit/Rural Credit’. The Micro Credit/Rural Credit’ comes under non-banking financial company (NBFC) activities.
• NBFCs carrying on the business of a FI prior to the coming into force of RBI Amendment Act 1997 are eligible for providing microcredit provided their CoR (Certificate of Registration) has not been cancelled by the RBI. The NBFCs are subject to Sec. 25 of Companies Act.

Who provides Microcredit?

1. Domestic Commercial Banks: Public Sector Banks; Private Sector Banks & Local Area Banks
2. Regional Rural Banks
3. Co-operative Banks
4. Co-operative Societies
5. Registered NBFCs
6. Unregistered NBFCs
7. Other providers like Societies, Trusts, etc.

Are there any targets fixed by RBI?

No. For microcredit, there are no fixed targets and banks are free to formulate their own models. Banks are also free to design their products for promotion of microfinance. However, banks have been asked by the RBI to devise and integrate the microcredit plans in their block level, district level and state level credit plans

• Banks are free to choose intermediaries, suitable branches, pockets, areas for implementation of microcredit programme. They are also free to devise appropriate lending and saving products. However banks have been instructed to include micro credit, in their branch, block and district & state credit plans. This has to be reviewed on quarterly basis.