IFC lends $500 million HDFC Bank for financing micro loan to women

Utkarsh Classes Last Updated 18-05-2024

IFC lends $500 million HDFC Bank for financing micro loan to women

Loan and Grant 7 min read

The International Finance Corporation(IFC) has provided $ 500 million loan to HDFC Bank to provide loans to the women microfinance borrowers . This information was provided by the HDFC Bank on 17 May 2024.

India’s largest private sector bank will use the loan amount to provide loans to the women's self-help group(SHG) and the joint liability group(JLG) that is engaged in a sustainable livelihood initiative (income generation).

Microfinance in India is dominated by non-banking finance companies(NBFC) and small finance banks. The NBFC provides loans at a higher rate to the SHG or JLG. Banks with access to cheap funds in the form of CASA(Current Account and Saving Account ) deposits can provide cheaper loans to the women SHG or JLG.

What is Microfinance ?

Microfinance refers to the financial service provided to the poor and low-income individuals or groups living in the rural, semi-urban and urban areas, not served by the traditional banking system.

Microfinance has been designed as an economic tool to promote financial inclusion, enable the poor and low-income households to come out of poverty and improve their living standards. Microfinance is a holistic term which provides a variety of financial services, like

micro-credit,
promotion of saving and thrift habits by opening bank accounts,
provision of micro insurance facilities,
provision of micro pension facilities and
Micro fund transfer facilities and counselling.

Muhummad Yunus of Bangladesh is considered to be the pioneer of Microfinance in the world. He set up a non-profit organisation, Grameen Bank, to provide loans to the poor, especially women. In 2006, he was honoured with the Nobel Prize for Peace.

Micro credit

Micro credit refers to the small amount of loan given to the borrower. The loan can be provided to a group or an individual.

RBI has defined microfinance or micro-credit as a collateral-free loan given to a household with an annual household income of up to Rs 3 lakhs.

Here, a collateral-free loan means that the borrower has nothing to keep any security to the lender against the loan.

One of the features of micro credit is that loans are given to a group called SHG/JLG. Even if the loan is taken by a member of the group, the responsibility for the repayment of the loan lies with the group as a whole.

Small Help Group /Joint Liability Group

Small Help Group (SHG)

NABARD defines Self-Help Groups (SHGs) as small informal groups of 10-20 individuals who come from the same social and economic background and live mainly in the same village or locality.
In the hilly areas and tribal-dominated regions, a minimum of 5 members are required to form a SHG.
In order to promote saving habits and thrift amongst the members, they have to regularly contribute a small amount to the group as savings.
The loan amount depends upon the amount saved by the SHG.

Joint Liability Group (JLG)

The Joint Liability Group (JLG)is an informal group of 4 to 10 members who have come together to take loans from financial institutions.
Unlike the SHGs model, the regular savings by the JGL members are purely voluntary.
The loans taken by the members of the JLG could be either individual loans or group loans against mutual guarantee.