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Nabard to launch arm for microcredit

July 04, 2007 10:26 IST

The National Bank for Agriculture and Rural Development is launching a non-banking financial company targetting the microcredit space in the country.

Christened as Nabard Financial Services, the new institution will have an authorised capital of Rs 100 crore and an issued capital of Rs 20 crore (Rs 200 million).

While Nabard will subscribe to the extent of 51 per cent equity, the remaining is expected to be held by banks, and state governments among others.

Disclosing this in Hyderabad on Tuesday, YSP Thorat (pictured), chairman, Nabard, said the main aim behind the initiative was to create an institution as a model to be emulated by other players in this area.

"Currently micro-finance operations in the country have been bogged down by problems such as lack of transparency in accounting procedures, high transaction costs, poor diversification of products, high rate of interest and coercive collection procedures. Our institution will function without any of these issues," Thorat said.

Headquartered in Bangalore, the company will start its operations initially in Karnataka on a pilot basis and later extend to Andhra Pradesh and Tamil Nadu.

"Banks are desirous of teaming up with Nabard in this new initiative," he said. Maintaining that the rate of interest to be charged on micro-credit will be reasonable, he however, said the institution would not follow any rigid formula in this regard.

In a new trend of sorts, Nabard is also co-financing projects to the extent of Rs 600 crore (Rs 6 billion) during the current year. A Rs 360-crore (Rs 3.6 billion) bio-diesel plant in Punjab, and a vinery project promoted by vine growers at Ratlam in Madhya Pradesh are among these projects, which, according to Thorat, require co-financing because no banking institution is ready to providing the entire finance due to the risks involved.

"Nabard will be playing a catalytic role in bringing these projects into existence through co-financing," he said.

As per the Vaidyanathan Committee recommendations on the revival of cooperative credit institutions in the country, Nabard will provide Rs 640 crore (Rs 6.4 billion) to district central cooperative banks in Andhra Pradesh and Rs 63 crore (Rs 630 billion) to those in Haryana for recapitalisation of these institutions, the chairman said.
BS Reporter in Hyderabad