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May 28, 2009

Not too long ago, I wrote a post that generated quite the discussion on credit and credit cards in India. As a followup to that, I thought you might find this positive article interesting. It came from one of the Outreach members of the American Women’s Association in Delhi. (You’ll notice the difference in writing in India – in the U.S., the word scheme would immediately hint at a negative program – but this is a positive article.)

Launch of Credit Scheme for Slum Dwellers

Asha made history on Tuesday 28th April by launching a loan scheme for the slum dwellers of India in collaboration with The Ministry of Finance, Govt of India and 9 national banks. The Chief Guest at the function was Mr. Arun Ramanathan, Secretary (Banking), Ministry of Finance, Govt of India, the senior most civil servant in the Banking Division of the Govt of India. The Guests of Honour were Dr KC Chakrabarty, Chairman and Managing Director, Punjab National Bank, and Mr. Gautam Kanjilal, Chief General Manager of State Bank of India, the national heads of the two largest banks in the country.

Dr Kiran Martin, Founder & Director of Asha, delivers the welcome address

Also present were the Chiefs of the other 7 national banks, the New Zealand High Commissioner to India, Mr. Rupert Holborow, Deputy British High Commissioner Mr. Creon Butler, Irish Deputy Head of Mission Pat Bourne, diplomats, dignitaries and over 300 slum dwellers from all over the city.

Loans were given to slum dwellers from all over Delhi for a diverse range of purposes, including the opening and expansion of shops and businesses, purchase of vehicles and construction or improvement of homes. 58% of the borrowers were females and 42% were males. The cheques were distributed to the borrowers on stage by the Chief Guest and the Guests of Honour, in the presence of Asha’s Founder and Director Dr. Kiran Martin and other Asha trustees.

Chief Guest Mr Arun Ramanathan, Secretary (Banking Division), Ministry of Finance, Govt. of India hands out loan cheques to slum dwellers

Dr Martin, the initiator as well as the driving force behind this scheme, remarked in her speech that, when properly implemented, the scheme can greatly increase the country’s GDP through creation of national wealth, and said that “by becoming a force for liberation and transformation, we will be able to change the social and economic landscape of our country”.

This is for the very first time in the history of our country that slum dwellers have been able to directly access formal banking services, a process known as financial inclusion. They have so far always been financially excluded, and have been relying on loan sharks and other exploitative arrangements for their financial needs. This scheme enables slum dwellers to open zero balance bank accounts and receive loans at a very low rate of interest with no collateral required. The application procedures have been made very simple and the loan amount can be as low as US$100 or as high as US$5000, depending on the profile and the repayment capacity of the borrower. The repayment period is between 2 and 5 years, but there are no penalties for early repayment.

Slum dwellers and borrowers from all over the city attend the function

The pilot scheme implemented by Asha and these banks in 2008 created a very substantial enhancement in family incomes and standard of living, and a stunning repayment rate of 99%, proving to all that slum dwellers were indeed bankable. The phenomenal success of the pilot resulted in the Ministry of Finance and the national banks taking a policy decision to implement this scheme all over Delhi and then India.

The major difference between this revolutionary scheme and the traditional self help groups is that in this scheme, each slum dweller has a direct relationship with the bank, and can access the same banking services as any other Indian citizen. The interest rate on loans is much lower (9%) than that paid by members of self-help groups (18-22%), because of the high administrative costs of running the self-help groups and the involvement of intermediaries. Also, most importantly, the loans given to members of self-help groups are very small, usually not more than US$300. This is often insufficient to make a substantial difference to the living standards of a slum family.

Slum dwellers are establishing their creditworthiness in the market, are able to participate in formal economic activity, and are joining the mainstream of society. They will experience not just a cosmetic effect, but a very real improvement in their standard of living, as has already been demonstrated by the 2008 pilot scheme. They can now hold the hope of leading a life of dignity just like other citizens of our country.

Banks are making profits based on large volumes, through funds in the current accounts of slum dwellers, giving loans and receiving prompt repayments, and providing other banking services such as remittances.

3 Comments leave one →
  1. June 1, 2009 8:10 am

    Interesting. Good thing you told me that scheme means something different. I would have been incredibly confused.

  2. May 30, 2009 5:36 am

    Sharmishtha – well, that put it in a whole different light, doesn’t it. What a dichotomy – help or not help – that is the crux of the problem in India, isn’t it. It is truly quite a dilemma.

  3. Sharmishtha permalink
    May 28, 2009 9:25 pm

    Sigh! This is an eternal dilemma. Giving the slum dwellers what they need for a human existence – water connections, ration cards, voters ID and now bank accounts – means de facto regularising an illegal, unauthorised construction, i.e. the slum. Don’t give them all that and it means cold-bloodedly letting them suffer their way through life. What to do, what to do? I guess it is somewhat parallel to the debates over illegal immigration in the US. Legalise them or throw them out?

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