RPCD.NO.PL.BC. 62 /04.09.01/99-2000 February 18, 2000 To
All Scheduled Commercial Banks
(including Regional Rural Banks) Dear
Sir MICRO CREDIT A
Micro Credit Special Cell was set up in RBI to suggest measures for augmenting
flow of micro credit. Please refer in this connection to paragraph 64 of our circular
No. BC.185/07.01.279/98-99 dated April 20, 1999 and paragraph 51 of our circular
No. BC.190/07.01.279/98-99 dated October 29, 1999. This Cell has since submitted
its report. In the meantime, a Task Force on Supportive Policy and Regulatory
Framework for Micro Credit was set up by NABARD and its report has also been presented.
Micro credit is defined as the provision of thrift, credit and other financial
services and products of very small amount to the poor in rural, semi-urban and
urban areas for enabling them to raise their income levels and improve living
standards. Micro Credit institutions are those which provide these facilities. 2.
In this context, it has been decided that banks may follow the undernoted guidelines
for mainstreaming micro credit and enhancing the outreach of micro credit providers: (i)
As mentioned in our circular RPCD.No.PL.BC. 94/04.09.01/98-99 dated April 24,
1999, interest rates applicable to loans given by banks to micro credit organisations
or by the micro credit organisations to Self-Help Groups/member beneficiaries
has been left to their discretion. The interest rate ceiling applicable to direct
small loans given by banks to individual borrowers, however, continues to remain
in force. (ii) The banks may formulate their own model(s)
or choose any conduit/intermediary for extending micro credit. They may choose
suitable branches/pockets/areas where micro credit programmes can be implemented.
It will be useful in our view to start with a selected small area and concentrate
fully on the poor in that area and thereafter with the experience gained replicate
the arrangement in other selected areas. Micro Credit extended by banks to individual
borrowers directly or through any intermediary would be reckoned as part of their
priority sector lending. (iii) The criteria for selection
of micro credit organisations are not being prescribed. It may, however, be desirable
for banks to deal with micro credit organisations having proper credentials, track
record, system of maintaining accounts and records with regular audits in place
and manpower for closer supervision and follow-up. (iv)
Banks may prescribe their own lending norms keeping in view the ground realities.
They may devise appropriate loan and savings products and the related terms and
conditions including the size of the loan, unit cost, unit size, maturity period,
grace period, margins, etc. The intention is to provide maximum flexibility in
regard to micro lending keeping in view the prevalent local conditions and the
need for provision of finance to the poor. Such credit should, therefore, cover
not only consumption and production loans for various farm and non-farm activities
of the poor but also include their other credit needs such as housing and shelter
improvements. (v) Micro credit should henceforth be included
in branch credit plan, block credit plan, district credit plan and state credit
plan of each bank. While no target is being prescribed for micro credit, utmost
priority should be accorded to the micro credit sector in preparation of these
plans. As advised in our circular RPCD.PL.BC.28/04.09.22/99-2000 dated September
30, 1999, micro credit should also form an integral part of the bank’s corporate
credit plan and should be reviewed at the highest level on a quarterly basis.
(vi) A simple system requiring minimum procedures and documentation
is a pre-condition for augmenting flow of micro credit. Hence banks should strive
to remove all operational irritants and make arrangements to expeditiously sanction
and disburse micro credit by delegating adequate sanctioning powers to branch
managers. The loan application forms, procedures and documents should be made
simple. It would help in providing prompt and hassle-free micro credit. (vii)
A statement
should be furnished to RPCD, RBI on a half-yearly basis indicating the amount
of micro credit disbursed by the bank. In this connection, we have revised the
format for the Progress Report on the Financing of Self-Help Groups by banks presently
being submitted by you to both NABARD and us as prescribed vide our circular RPCD.PL.969/04.09.22/97-98
dated May 05, 1998. A copy of the revised statement format is enclosed. The first
such statement should relate to the period ending March 2000. Banks
should initiate immediate action in regard to the above under advice to us. 3.
Please acknowledge receipt of this letter. Yours
faithfully ( B.R. Verma )
Chief
General Manager-in-Charge Encls.
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