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Poverty can be good business

Sarbajeet K. Sen

New Delhi , Feb. 23

CAN poverty be a business proposition for lending institutions?

To most decision-makers in the banking sector, this may come as a bizarre suggestion. But a group of people is quietly working to "change this mindset" by proposing alternative models to convince bankers that profits can be reaped from banking with the poor.

"We are working with formal lending institutions to make them realise that poverty can be seen as a viable business idea. Formal lending institutions prefer something like a tractor loan over a hundred small loans. We want to change this mindset," said Mr Vipin Sharma, Programme Director of the CASHE Project, run by CARE. CARE is a non-governmental organisation (NGO) working in several countries across the globe.

CASHE, an acronym for Credit and Savings for Household Enterprise, is an ongoing five-year-old project funded by the British Government's Department of International Development (DFID).

As a start, CARE has begun working with the country's largest commercial bank, State Bank of India (SBI), and a few regional rural banks to propagate the micro-finance culture. The programme, with exclusively women beneficiaries, is operational in Orissa, Andhra Pradesh and West Bengal. CARE is considering widening the programme's reach to other states.

Mr Sharma said that besides poverty alleviation, financing the CASHE way could help banks meet their priority-sector targets. "We would like to see lenders achieve their priority-sector targets in a more creative manner," Mr Sharma told Business Line ahead of the CARE-organised three-day seminar `Microfinance India 2008,' starting on Tuesday.

The CASHE programme, which is looking at increasing the number of beneficiaries to 5 lakh from the existing 2.2 lakh when the close-ended project completes its tenure in December 2006, functions through a three-tier structure comprising banks as financiers, NGOs as the promoting arm and self-help groups (SHGs) comprising recipients. "We are trying to tie banks with the NGO intermediaries to strengthen the SHG movement. Some of our 25 NGOs can later turn into micro-finance institutions. Some may even become NBFCs," Mr Sharma said.

He said that the individuals in the SHGs are encouraged to save a small amount every week, at the end of which one of them is given a small loan on terms, including interest rate and repayment period, decided exclusively by the group itself. "The loans are not necessarily linked to commercial activity. However, loan defaults are less than 5 per cent though the interest rate on an average charged by the groups are nearly 24 per cent per annum," Mr Sharma said.

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