K'taka to enter microfinance

Close on the heels of the recent controversy surrounding over the microfinance institutions, Karnataka government has decided to foray into the micro finance business with an initial corpus of Rs 500 crore.

With this, Karnataka will join the league of Andhra Pradesh to have its own state-funded microfinance institution. The government plans to lend at the rate of 4 per cent interest per annum to unorganised sector workers.

“There are about 3.5 million unorganized sector workers in the state of Karnataka, who are deprived of any kind of institutional finance. They all depend on the moneylenders to borrow at higher rates of interest. We want to help them through this subsidised loan scheme,” Vishweshwar Hegde Kageri, minister for primary education said.

The scheme will help self help groups (SHGs), women SHGs, and micro, small and medium enterprises in the state. Briefing reporters on the cabinet decisions, he said the government aims to start the scheme during the current financial year.

About 15,000 self-help groups would be assisted during this year. The microfinance venture will be carried out under the department of cooperation, he said.

Ramesh Ramanathan, chairman, Janalakshmi, a not for profit microfinance institution said, “the Andhra Pradesh government is already running such schemes, so it is to be seen that how the state government implement its new initiative in the coming days.”

He, however, said that the government has to effectively run the scheme through the banking system.

MFIs have been mired in controversy due to higher rates of interest charged to the beneficiaries.

Andhra Pradesh has come up with an ordinance regulating the MFI industry.

Recent decision of Karnataka government will have further repercussions on the industry as states increasingly enter into the MFI space.

The mission of the department of cooperation is to act as a catalyst in developing and strengthening the cooperative movement.

According to an analyst, the public sector banks use to lend at a differential rate of interest (DRI) many years ago.

“The present scheme planned by the Karnataka government would be one such scheme and only time will tell how efficiently the government would manage the scheme,” he said.