MICROCAPITAL STORY: India Post and NABARD Partner to Disburse Microcredit Throughout India

India Post will soon disburse microcredit sanctioned by The National Bank for Agriculture and Rural Development (NABARD) in the Northeast and eight additional states of India, building on a scheme operating in Tamil Nadu in the Southeast. The funds are sanctioned as microloans to Self-Help Groups, or SHGs which, according to Professor Annuppalle, of Sri Venkateswara University in India, is a “small voluntary association of poor people, preferably from the same socio-economic background.” While SHGs encompass both male and female participants, the funds will be distributed to female SHGs only.

This project was first implemented in 2006 as a pilot project in a number of post offices in two districts of Tamil Nadu, a state which lies on the eastern coast of the southern peninsula of India. It was extended to three additional districts and all post offices in these five districts are currently participating. So far, 165 SHGs have received these loans, for a total loan disbursement of Rs 1.35 million (USD 29 thousand). Additionally, 2,900 SHGs have been formed to create credit linkages with 2000 post offices in nine divisions of the state.

The loans are set up so that NABARD provides the funds and the Post Office disburses the loans to SHGs. The interest rate is nine percent, three percent of which is commission for the Post Office, the rest is returned to NABARD. SHGs must open accounts with their local post office, and once they are identified by NGOs or recommended by NABARD they are watched for six months. A committee made up of representatives from NABARD, relevant NGOs and the Department of Post determine a credit rating and those SHGs with qualifying marks are eligible for these loans. The upper loan limit is Rs 24,000 (USD 515) or four times the deposit the SHG has in their post office.

India Post is the largest postal system in the world; there are currently 155,333 post offices in India, of which 139,074 are in rural areas. There is approximately one post office in every 21.2km² in India, each serving approximately 7166 people and in 2007 there were 162 million savings accounts held in an India Post account. There is no financial statement available for India Post, however their 2007-2008 Annual Report indicates that they operated at a deficit of Rs. 12.4 billion (USD 266 million) over this time period.

The National Bank for Agriculture and Rural Development (NABARD) was founded in 1982 as part of a government mandate to facilitate credit flow for promotion and development of agriculture, small-scale industries and rural crafts. As of March 2006, 33 million individuals have been linked to microcredit through this program. NABARD reported total assets of RUP 812.5 billion (USD 17.4 billion) and return on assets of 5.86 percent, as calculated from its 2007 financial statements (p.3). NABARD launched a non-banking financial company in 2007 called NABARD Financial Services in order to address challenges in the Indian microfinance industry. More can be read on this topic in this MicroCapital Story. They have also actively sought information on microfinance in other countries, such as Sri Lanka, more information on which can be found here.

By Lori Curtis, Research Assistant

Additional Sources:

Federation of Indian Chambers of Commerce and Industry: “Micro Credit initiatives in post office of Tamilnadu: A Presentation by Ms. T. Nirmala Devi”

India Post: “2007-2008 Annual Report”

International Council on Social Welfare: “Self-Help Groups In India – A Catalyst For Women

Economic Empowerment And Poverty Eradication”

MicroCapital Story: “ Indian Government Agency NABARD (National bank of Rural Development) Sponsors Trip by Indian Banking Representatives to Observe Microfinance in Sri Lanka”

MicroCapital Story: “India’s National Bank for Agriculture and Rural Development (NABARD) Creates New Initiative to Target Microfinance”

NewsPost: “India Post to disburse micro-credit in eight states and North-East”

New Karala: “Post offices to facilitate micro-credit to women in SHGs in NE”