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1. Financing SHGs directly by banks without any intervention / facilitation of Any SHPI 2. Financing SHGs directly by banks with intervention / facilitation of Non Governmental Organizations. 3. Financing SHGs directly by banks with intervention / facilitation of Governmental Agencies 4. Financing SHGs directly by banks with intervention / facilitation of bank Staff 5. Financing SHGs with financial intervention of non governmental organizations 6. Financing SHGs with financial intermediation of NGOs/ SHG cluster associations 7. Financing SHGs with financial intermediation of NGOs/Mutually Aided Cooperative Societies. 8. To generate livelihood for poor women.
The banks may establish criteria for selecting the Business Facilitators/ Correspondents through a Board approved policy which may expressly state the strategic reasons and the perceived benefits for establishing such relationships. One major criteria may be the incremental outreach that it may gain so that till now unbanked people can be served. Such an approach shall help in monitoring the costs in maintaining the arrangement.
Business Correspondents
Agencies shall have significant rural presence. The entity shall have been in existence for at least three years with a good track record. Banks may take the help of the Council for Advancement of Peoples Action and Rural Technology (CAPART) for obtaining the list of approved NGOs who are active in their areas of operation.
These agencies should be the customers of the bank with satisfactory conduct of account for a minimum one year period.
The bank may carry out a process of vigorous screening including due diligence and rating as described in detail in this Chapter before engaging Business Correspondents
The institutions/persons to be engaged as Business Facilitators and Business Correspondents shall enter into a formal contractual relationship with the bank, which shall explicitly detail the functions that they shall undertake on behalf of the bank, the precise terms and scope of the services, compensation, etc. The contract shall include rights, responsibilities and expectations of all parties, including the compensation structure and shall include an enabling clauses for the principal (i.e. the bank) to access the records of such entities, particularly in the case of Business Correspondents, wherever considered necessary. A list of "DOs" and "DON'Ts" may also be annexed to the contract. The contract shall be legally enforceable, and shall contain termination clauses. The banks shall establish a system of watching the performance of accounts brought in by such agencies and shall rate agencies on the basis of the performance of the accounts. These assessment parameters shall include the remoteness of the accounts brought in, the types of client, the regularity of savings/credit usage and repayments, upkeep of records, etc.
Appendix 1
Nonfinancial Services
Financial Services
As Pass-through Agents
Scope of Activities
(i) Borrower identification (ii) Collection, processing and submission of applications (iii) Preliminary appraisal (iv) Marketing of the financial products (v) Post sanction monitoring (vi) Promotion and nurturing SHGs/JLGs (vii) Follow up of recovery.
Scope of Activities
(i) Disbursal of small value loan (ii) Recovery of principal / collection of interest (iii) Sale of insurance, mutual fund, etc. (iv) Collection of small deposits in due course of time.
ELIGIBLE ENTITIES NGOs, Farmers Clubs, Functional Cooperatives, IT enabled rural outlets of corporates, Postal Agents, Insurance agents, Well functioning Panchayats, Rural Multipurpose Kiosks/ Village Knowledge Centres, Agri Clinics/Agri Business Centers, KVIC/ KVIB units, KVKs Local youth, Retired bank employees, etc.
ELIGIBLE ENTITIES Registered NBFCs Section 25 companies NGOs-MFIs set up under Societies/Trust Act Societies under MACS, PACs Government/ corporate supported IT enabled outlets
Transfer of implicit capital from the bank to the MFI through an overdraft facility
To resolve the risk capital issue for the MFI, the bank have evolved a structure that combines the provision of both debt as well as mezzanine finance. Along with advancing of credit to meet the demand of the clients, the bank often provides an overdraft (OD) facility to the MFI. The OD facility is equivalent to the amount which the MFI is liable to provide as the FLDG. The OD represents funds committed but not utilized. The OD is drawn only in the event of default. On default, the MFI is liable to pay a penal rate of interest on the amount drawn down from the OD facility.