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NBCFDC: Offering finances at nominal interest rates to save needy from loan sharks

RC Acharya

At a time when a lot of media attention is on agri-distress emanating out of debt traps faced by farmers paying, in some instances, close to 100% interest rates, there are a few less-talked-about narratives of financing being made to the needy at concessional rates. The National Backward Classes Finance & Development Corporation (NBCFDC), under the ministry of social justice & empowerment, is one such body quietly ushering in a revolution by catering to backward classes, who, as per the NSS, form 50-60% of the population.

Charged with the laudable objective of disbursing loans to those having annual family income less than Rs 3 lakh and to whom banks would normally lend at a commercial rate of 11% if at all a collateral is available while loan sharks would fleece them, the NBCFDC makes loans available at a mere 3.5-7% rate of interest. This is even lower for women at 5% and 4% for self-help groups (SHGs).

Set up in 1992 under Section 25 of the Companies Act, 1956, the NBCFDC has, by judicious financial management, been able to disburse `4,362 crore as loans, with only `1,314 crore share capital received over 26 years. Significantly, over last four and a half years, it has disbursed `1,786.71 crore, which is almost 41% of all loans disbursed since it came into existence. States that nominate their finance corporations as state channelising agencies (SCAs) are the ultimate guarantor for the loan, resulting in the NBCFDC s record of loan recovery being around 95%. However, with some SCAs defaulting and some not extending guarantees, the NBCFDC has started relying on public sector banks (PSBs) and regional rural banks (RRBs) to act as its alternate channels.

Those eligible for the scheme are urban or rural members of OBCs as appearing either in the State or the Central list, with an annual family income below `3 lakh. With a view to improving accessibility of the financing scheme for urban migrants, the NBCFDC accepts caste certificates issued by the state of their domicile. For establishing annual income, self-certification that is duly endorsed by a gazetted officer or even the branch manager of the bank sanctioning a loan has made this task much simpler. A maximum of 85% of the project cost for term loans of up to `10 lakh is made to the beneficiary, with the SCA picking up the tab for the balance 15%, so that they remain in the loop.

Of the four main areas for loans agriculture and allied activities, transport and services sector, technical and professional trades/educational loans for professional courses, and loans for small business/artisan and traditional occupation the last is the most popular. It is the most desirable as it helps generate jobs when a business venture takes off.

Significant steps have been taken by the NBCFDC to make its loans in agricultural and allied activities more accessible and effective. Loans can now be availed in convergence with other schemes of the government, such as NABARD loans, some of which come with a 30-35% capital subsidy. Combining this subsidy with the concessional interest rates of the NBCFDC has enabled disbursement of `25 crore in Uttar Pradesh by the Gramin Bank of Aryavart.

In another major simplification of procedure, the NBCFDC has allowed automatic categorisation of landless agricultural labour, marginal and small farmers belonging to OBC, as ascertained by banks, for disbursal of loans under agriculture and allied activities.

Success stories may not hit the headlines, but do lead to a significant change in the lives of the rural as well as urban poor. Reportedly, women in Tamil Nadu and Kerala have been able to make optimum use of the Mahila Samridhi Yojana (a microfinance scheme for women) of `60,000 at a mere 4% per annum interest, with the NBCFDC funding 95% of the project cost. Also, under the New Swarnima scheme, women of the target group can get a loan of `1 lakh at a nominal rate of interest of just 5% per annum, with the NBCFDC funding 95% of the project cost. Not a bad deal.