Sa-Dhan Newsletter Volume 4 Issue 2

Community Based Organisations

crores on the comfort of a guarantee letter issued by Deutsche

What has been the experience of Indian MFIs in

Bank, Luxembourg, on the strength of a loan of US $

securing credit guarantees

600,000 sanctioned by Dexia Micro- credit Fund, Luxembourg.

Some MFIs in India have already secured loans through the

Under a similar arrangement, SML has borrowed from

credit guarantee mechanism. Cases of Share Microfin Limited

Calvert Foundation and CORDAID.

(SML), Society for Promotion of Area Resources Centre

(SPARC) and Youth Charitable Organisation (YCO) are

SPARC secured a loan of Rs. 80 lakhs from Citibank against

discussed below:

the guarantee of Homeless International, U.K. It borrowed Rs.

3 lakhs from HUDCO, which was guaranteed by Bank of

SML has raised three loans from international sources. On

Baroda on the strength of a guarantee by Guarantee Fund,

account of the exchange rate risk, SML did not wish to take

Luxembourg. YCO raised loans from HDFC, HUDCO and

the loans in foreign currency. Through the credit guarantee

Indian commercial banks and Homeless International Guarantee

mechanism, SML could raise equivalent amounts in Indian

Fund, UK, guaranteed these loans. The loans provided by the

currency without having to bear the exchange rate risk.

lenders were four times the value of the Pound Sterling

Deutsche Bank, Mumbai, granted a term loan of Rs. 2.7

deposit guarantee provided by Homeless International.

SA-DHAN, THE URBAN POOR, AND A BANK FOR THEM

Ashok B Sharma

finance, like say the National Bank for Agriculture and Rural

Financial Express

Development. The urban areas which have adequate infra-

February 10, 2003

structure and presence of commercial banks have a large

P

section of needy population which have deprived of the

olicymakers in the country have so far failed to address

benefits of loans from formal banking sector. Unlike rural

the credit needs of the urban poor in an effective manner.

areas, there are few NGOs and MFIs operating in urban areas

Had this vital aspect been addressed properly, it could have

for delivering credit to the poor. Self Employed Women's

boosted the government's poverty alleviation programmes for

Association (SEWA) Bank operates in Ahmedabad,

urban areas to a much greater extent through a successful

Sanghamitra Urban operates in Bangalore and the WWF in

intervention strategy.

some few pockets.

The plethora of government's poverty alleviation programmes

"Micro-finance is emerging as a global industry. BancoSol

for urban areas initiated over the last 50-odd years did have

of Bolivia has been incorporated in February 1992 as the

the element of credit in some self-employment-related schemes,

world's first licensed commercial bank solely dedicated to

but the orientation of these initiatives were not sufficient to

providing micro-finance services to micro-entrepreneurs.

deliver the required results. There has been reported cases

International MFIs like ACCION International is affiliated with

of government officers and community organisers demanding

urban microcredit activities in cities in Argentina, Bolivia,

substantial portions of loans and subsidies from beneficiaries

Brazil, Colombia, Ecuador, Honduras, Nicaragua, Benin and

in return for approving their cases for release of credits from

Mozambique. Opportunity International is involved in urban

banks. The government schemes being bureaucratic in nature

programmes in Bulgaria, Macedonia, Poland, Ghana and the

gave less scope for capacity building of the beneficiaries.

Philippines," says Ms Sharon M Barnhardt, one of the co-

authors of the study on urban poverty alleviation conducted

Keeping in view the prevailing situation, the national federa-

by the Bangalore-based Ramanathan Foundation.

tion of micro-finance institutions (MFIs) in the country, Sa-

Dhan, has mooted a proposal for urban development (ABUD).

Sa-Dhan's proposals are based on the study entitled `Urban

Says Sa-Dhan's co-chairman and managing director of

Poverty Alleviation in India' conducted by Ms Supriti, Ms

BASIX, Hyderabad, Vijay Mahajan: "Several Poverty allevia-

Sharon M Barnhardt and Mr Ramesh Ramanathan on behalf

tion schemes for urban areas which have incorporated the

of the Bangalore-based Ramanathan Foundation.

element of credit like the Swarna Jayanti Sahari Rozgar

Yojana (SJSRY) should be streamlined for facilitating the

The study suggests that the proposed ABUD should be set

participation of NGOs (having good track records) in delivery

up as a public-private partnership on the lines of the

of credit and capacity building to beneficiaries and self-help

Industrial Development Finance Corporation rather than the

groups (SHGs). Housing loans for urban poor should also

old-style apex institutions like Hudco and Nabard. Its gov-

be routed through NGOs."

ernance, organisational culture and operating ethos must

reflect 21st century values ­ striving to serve the unreached

Sa-Dhan is right in suggesting the need for an apex bank

urban masses for their overall economic and social devel-

for urban development to cater largely to the needs of micro-

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