In the rural Indian village of Jaltara, the village council is extending microfinance loans to villagers by issuing Gram Sabha (village council) Credit Cards (GSCCs). As part of the government-sponsored Madhya Pradesh Rural Livelihoods Project, the council issues the GSCCs, which serve as loans from the village treasury, instead of distributing money. The size of each loan, which must be repaid in six months, and the repayment schedule are decided in the council meetings.
Each card displays basic information including the name and assets of the holder. Holders can receive up to Rs. 10,000 (USD 232) in credit at a five percent annual interest rate. These rates are well below those charged by for-profit microfinance institutions like SKS, which has an average rate of around 26%. The loan recipients must also give the name of two guarantors for their loan.
The village council and government sponsors intend for the loans to be used to help build livelihoods. The use of loans for marriage, purchasing vehicles or house construction is prohibited. According to village head Dev Singh Ugad, “The system of GSCC has saved poor families from falling into trap of informally operating money lending system.” So far, at least 50 loans have been extended in the village of approximately 350 people located in the Mandla region of Madhya Pradesh.
Financial backing for the loans in provided by Madhya Pradesh Rural Livelihoods Project, which deposits money directly into the Gram Kosh (village treasury) account. The Madhya Pradesh Rural Livelihoods Project is a state government initiative founded in 2004 which “seeks to enhance poor people’s livelihoods in tribal dominated districts” by improving access to resources and building microenterprises. The United Kingdom’s Department for International Development (DFID) has provided the majority of funding for the project with two large donations totaling GBP 61.4m, the equivalent of USD 123m, to be spent over an eight year period ending in 2012. The Indian government staff is supported by the Rural Development Department Budget.
By Greg Casey, Research Assistant
Yahoo: “A village council that gives credit cards to villagers,” July 14, 2008.
The Economic Times: “Gram Sabha credit cards introduced in Mandla district,” July 14, 2008.
IndiaMicrocredit: Interview with Vikram Akula, SKS Microfinance
Madhya Pradesh Rural Livelihoods Projects: Home
Madhya Pradesh Rural Livelihoods Project: Summary
Madhya Pradesh Rural Livelihoods Project: How We Work
Madhya Pradesh Rural Livelihoods Project: FAQ
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