On January 1, the government of the Indian state of Andhra Pradesh will introduce Vaddi Leni Runnam, a scheme that will provide women in self-help groups (SHGs) interest-free loans of up to INR 500,000 (USD 9,500) [1,2]. SHGs are units of 10 to 20 individuals that pool their savings, apply for group loans and lend internally to their members. In an effort to encourage good repayment habits, the interest waiver will only be sustained for members who make their payments on time. A budget of INR 14 billion (USD 268 million) has been set aside for this project [1].
In 2004, the Andhra Pradesh government introduced a similar scheme called Pavala Vaddi, which provides interest subsidies to SHGs. The initiative reportedly resulted in an increase in credit flow from INR 1,200 crore (USD 229 million) in the 2004-2005 fiscal year to INR 8,600 crore (USD 1.64 billion) in 2010-2011, as well as a nine percent reduction in poverty levels. Of the INR 16.2 billion (USD 310 million) that has been disbursed since the launch of the scheme, INR 8.75 billion (USD 167 million) was released during the current fiscal year [2].
By Kristha Abores, Research Associate
Sources and Additional Resources:
[1] Press Release from the Government of Andhra Pradesh, http://ipr.ap.nic.in/release/release.asp?relid=103991
[2] “Interest-free loans for SHG members from January,” http://www.thehindubusinessline.com/industry-and-economy/government-and-policy/article2659847.ece
MicroCapital.org article, October 12, 2011, “MICROCAPITAL BRIEF: Microfinance Institutions in India’s Andhra Pradesh State Seek Government, Commercial Bank Assistance in Restructuring Loans,” https://www.microcapital.org/microcapital-brief-microfinance-institutions…
MicroCapital.org article, September 22, 2011, “MICROCAPITAL BRIEF: Government of Andhra Pradesh, India, Launches Cooperative Microfinance Bank for Self-Help Groups (SHGs),” https://www.microcapital.org/microcapital-brief-government-of-andhra-pradesh-india-launches-cooperative-microfinance-bank-for-self-help-groups-shgs/
MicroCapital.org article, August 15, 2011: “MICROCAPITAL BRIEF: Indian Government Publishes Draft of Microfinance Institutions Bill, Would Make Reserve Bank of India (RBI) Sole Regulator, Establish Microfinance Development Council, Microfinance Development Fund”,https://www.microcapital.org/microcapital-brief-indian-government-publish…
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