AP to set up APEX Co-op Bank for SHGs

Source: Business Standard - Aug 17, 2011

The Andhra Pradesh government is all set to establish Apex Cooperative Bank for women self-help groups (SHGs) to minimise the scope for microfinance operations in the state.

Though the government had initially worked on the idea of forming a non-banking financial company (NBFC) in collaboration with public sector banks, it had to opt for the cooperative format as bankers informed about certain regulatory constraints in joining the NBFC, according to a senior government official.

The state Cabinet on Tuesday approved the proposal, which is expected to be formally launched next month.

The bank will be set up with the existing mandal samakhyas (federations of SHGs at mandal level) as its lending arms, thus bringing the vast SHG network into its fold. It is also designed to extensively leverage modern technology for loan transactions in such a way that a loan is sanctioned within 48 hours, according to government officials.

There are about 950,000 SHGs in the state, federated at the village level as village organisations (VOs). These VOs, in turn, are federated at mandal(administrative unit above the village level) mahila samakhyas (MMS), representing almost 10 million women members. The MMS, which have been involved in lending to SHGs for the past two years, currently handle Rs 7,000 crore business.

The proposed bank is expected to play a major role in meeting short-term financial needs of those groups that are already servicing term loans from commercial banks. As the groups are denied fresh leverage by banks during the currency of existing loans for the 3-5 year repayment period, the poor people have no alternative but to approach MFIs and money lenders for loans at high interest rates, the officials said.

The loans extended by the proposed bank would also carry the existing ‘Pavala Vaddi’ scheme under which timely repayments attract less than 4 per cent interest while the government reimburses the remaining interest component from the public exchequer.