MICROCAPITAL STORY: Indian Finance Minister Promises Credit to North Eastern Region

The Finance Minister of India stated that the North Eastern region of India would receive an increased flow of credit from the central government, addressing the Special Summit on Banking, Industries and Credit Issues in the North Eastern Region organised by the Ministry of Development of North Eastern Region (DoNER) at Vigyan Bhavan. The Finance Minister, Chidambaram, stated that although the North Eastern region is not currently receiving enough credit, it will begin to. The Summit was attended by the Minister of Development of North Eastern Region (DoNER), the deputy Governor of Reserve Bank of India, the Chairman of the State Bank of India and other top officials of line ministries and financial institutions.

Chidambaram assured attendees that more credit will be disbursed in the North East States, through conventional and unconventional sources. He stressed that the credit was available, but the problem was finding intermediaries. Chidambaram did not specify the exact source of the funds, nor the exact recipient. In his 2008-2009 budget speech, he dedicates a specific section to the North Eastern Region and proposes to increase the total budget allocation by for this region from Rs 14.3 billion (USD 298 million) in 2007/2008 to Rs 16.4 billion (USD 342 million) in 2008/2009. These funds are spread among different ministries and departments in the region, with Rs 1.4 million (USD 29 thousand) provided specifically to the Ministry of Development of the North Eastern Region.

This conference comes less than one week after it was announced that the National Bank for Agriculture and Rural Development (NABARD) and India Post are partnering in the North East to further facilitate microfinance in rural areas. More details can be found in this MicroCapital Story. The Finance Minister agreed that microfinance agencies, as well as NGOs and self-help groups (SHGs) would play a vital role in acting as intermediary agencies.

The Government of India has set up a special zone for the north-eastern region (NER). The NER comprises Arunachal Pradesh, Assam, Nagaland, Manipur, Meghalaya, Mizoram, Tripura and Sikkim. Each of these eight states differs widely in terms of political and socio-economic environment. Almost 98 percent of the land area in the NER runs along international borders with Bhutan, Bangladesh Myanmar and China. “The North East region remains a classic case of financial exclusion,” says Dr Abhijit Sharma, assistant professor at the Indian Institute of Bank Managment (IIBM). The Finance Minister has said that problems related to the banking sector in this area are related to a poor rate of recovery, with non-performing loans as high as 17 percent. In a study “Expanding Outreach to Underserved Regions: Kickstarting Micro Finance in the North East Region”, it is suggested that due to diverse traditional systems and the unique geographical conditions of the region make it “almost impossible” to take the model of SHGs on which microfinance in India relies in other regions and use it in the North East. The study proposes that forming SHGs that fit the description to meet the standards set by NABARD may involve costs so great that they are not sustainable, and modifications may need to be made.

By Lori Curtis, Research Assistant

Additional Sources:

The Assam Tribune: “Centre to ensure more credit for NE

InfoChange: “The Challenges of microfinance in the North East

MicroCapital Story: ” India Post and NABARD Partner to Disburse Microcredit Throughout India

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