In its latest attempt to virtually wipe out microfinance institutions from the state, the Andhra Pradesh government has decided to introduce interest-free loans for women in self help groups, with an outlay of Rs 1,400 crore from next financial year.

With this, it aims to encourage better repayment habit among the 1.36 crore women in the 12.5 lakh self help groups. This new scheme grants complete interest subvention, under bank linkages, for groups with a record of on-time repayments.

In 2004, the Andhra government had introduced the 3 per cent interest rate under the “Pavla Vaddi” scheme. The government claims that this scheme brought better credit flow among the rural poor from Rs 1,200 crore in 2004-05 to Rs 8,600 crore in 2010-11. Not just this, but this resulted in a drop in poverty level by around 9 per cent in 4 years, as evaluated by Centre for Economic and Social Studies.

The government has so far just released only around Rs 1,620 crore towards Pavala Vaddi scheme since 2005, of which about Rs 873 crore has been released in the last one year after the MFIs were hit by the crisis.

However, SHG members find it easier to access loans from MFIs against such bank-linked schemes due to the procedural delays and stringent norms. MFIs offer their services at the doorstep. Also, the cre­dit demand among them cannot be met by these government schemes.

“The enterprises being run by the rural or urban poor SHGs are under stress due to the high interest rates charged by the banks and the even higher interest rates charged by the non formal lending sector as also the MFIs. This has been adversely affecting the profitability of their enterprises,” the government said in a statement.