Micro Finance Company

Micro Finance Scheme: NMDFC

The National Minorities Development and Finance Corporation has launched its micro finance scheme for minorities for their holistic development. The scheme aims to provide concessional finance to the members of the minority communities with low-interest easy loans for self-employment or other income-generating activities. The main aim behind this cause is to promote the idea of entrepreneurship by providing easy credit amongst the economically weaker sections of minorities across the country. This article aims to decode the Micro Finance Scheme for minorities by NMDFC.

National Minorities Development and Finance Corporation: Brief Overview

The National Minorities Development & Finance Corporation^[1] is under the administrative control of the Ministry of Minority Affairs, Government of India. The main goal of this department is to promote economic development and activities for the benefit of the minority section of society. Registered under section 25 of the Companies Act 2013 as a Company, not for Profit for the benefit of backward sections of society. The Ministry decides the operational matrix and other relevant details via notifications and circulars. The micro finance scheme aims to provide easy loans to all the minority sections for their holistic development.

Purpose of the Loan

The loan provided to the SHGs/ NGOs under the micro finance scheme shall be given only to the minorities to augment income amongst the population’s specific segment. The minority has to utilise the loan for activities that can be helpful in creating a source of income for the individual. An indicative list of income-generating activities is provided below;

1. Transport And Service Sector (Tertiary Sectors)
2. Technical And Non-Technical Trading
3. Small Businesses and MSMEs
4. Artisans And Traditional Occupations
5. Agriculture And Allied Activities 

Eligibility Criteria for Obtaining a Loan

The eligibility criteria for obtaining loan under the micro finance scheme have been divided into a single beneficiary and an NGO.

Criteria for Beneficiaries:

1. The beneficiary must fall under the six notified minority communities: Christian, Muslim, Jains, Buddhist, Parsi and Sikh.
2. The annual family income of the business should be 9000 per annum for rural households and 12000 for urban households under credit line 1. For Credit Line 2, the family income should be up to 600000 per annum.
3. Any borrowers that have been already covered under any scheme of the State or Central government that provides financial assistance by way of credit are not eligible for this scheme.
4. The borrower shall be a regular member of the Thrift and Credit group or SHGs (Self Help Groups). It is essential that the SHG should majorly consist of the minority populations as its members. More than 75% of the population of the SHG shall comprise the minority section for which the relief is claimed. In exceptional circumstances, SHGs up to 60% of the minority shall be considered provided that another section comprises members of weaker section of the society, including ST, SC and OBCs, for obtaining a loan under the micro finance scheme.
5. The authority will give preference to women-based and occupational groups belonging to notified minority communities.

Eligibility Criteria for NGOs

1. The Ngo that seeks to avail of benefits under this scheme has to be registered for at least 3 years and should have a good reputation and credibility in its area of operation.
2. The bye-laws of the Ngo should provision to borrowing funds for helping the poor.
3.  The NGO must serve the weaker sections of society and preferably should work for minorities.
4. The organisation must have the necessary set-up and flexibility to conduct lending programs across different regions.
5. The office bearers shall not be elected members of any political party.
6. There should be a proper system of maintaining accounts, the accounts of the Ngo should be published for at least 3 years with no significant irregularities in the audit.
7. The organisation should be running on fine lines and should not have incurred losses
8. It should have relevant experience in Thrift and Credit administered through the SHGs.
9. The recovery rate should be at least 90% of the thrift and credit scheme.

Quantum of Loans

Under the current Micro Financing scheme, the maximum amount of credit that can be availed by each beneficiary (member) of the SHG is ₹1,50,000. However, according to the scheme, the emphasis is to provide loans repeatedly so that the individual can rise above the poverty Line.

The following table depicts the Quantum of Lon to be provided to the beneficiaries

S. No.	Parameters	Scheme Details	Revised
	Eligibility	Family Income (Annual) ₹98,000/- Rural Areas ₹1,20,000/- in Urban Areas	Family Income Annual Upto ₹6,00,000
	Credit Limit	Upto 1 lac per member and 20 lacs per 20 members in one SHG	Upto 1.50 Lacs per memvers SHG and 30 lacs for a group of 20 members in one SHG
	Rate of Interest for SCA/ NGOs	1% p.a.	4% for male 1% for female
	Rate of interest charged from SHG by SCA	7% p.a	10% for males 8% for females
	Rate of interest charged from the beneficiary/SHG	7% p.a.	10% for males 8% for females
	Rate of interest charged from NGOs	1%	4% for males 2% for females
	Moratorium Period	3 Months	3 months
	Repayment Period NGOs	3-4 years	3-4 years
	Repayment Period Beneficiaries	3 years	3 years
	Utilisation period of Finance	1 month to 3 months	1 month to 3 Months
	NMFDC share	90:10	90:10

Finance Pattern

The NMFDC will provide up to 85% of the loan; 10% will come from NGOs and State Channelizing Agencies (SCAs); and the remaining 5% must come from the loan recipient.

Protection for Loan

The collateral for granting funds under the NMFDC microfinancing programme must be a bank guarantee. Otherwise, a set amount equal to 100% of the total sanctioned loan amount must be deposited before the NMFDC releases a loan directly to the NGO.

Return of the Loan

• After a three-month moratorium from the date of cash distribution, the NGO applying directly to NMDFC or SCA will repay the loan amount plus interest.
• For a period of four years following the date the funds were used, SCAs will pay back NMDFC. The terms and conditions of loan repayment will vary according to the type of project the recipient has accepted. The SCAs will pay back the loan and interest on a quarterly basis.
• As stated in the sanction letter, the NGO would send post-dated checks for the payment of quarterly dues. The NMDFC/SCA will only keep these post-dated checks for security purposes.
• The post-dated check for the relevant quarter will be returned along with an acknowledgement of the funds received upon receiving reimbursement from the NGO.

How to Apply for a Loan

The NGO/SHG must adhere to the following procedure if it wants to operate the micro finance scheme through the State Channelizing Agency (SCA):

• An NGO or SHG that wants to apply for microcredit can do so by contacting NMDFC directly or the State Channelizing Agency (SCA) of NMDFC in their particular State.
• If an NGO submits an application to the SCA, it should go to the managing director of the State Channelizing Agency in that State. The SCA would then verify the application using the NMDFC’s criteria.
• If an NGO implementing the scheme wishes to apply for a loan directly from NMDFC, they should do so using the appropriate application form.
• Following receipt of the application by NMDFC/SCA, information about the NGO is gathered from the Registrar of Co-operative Societies or other bodies with which the NGO is registered.
• The NMDFC would approve the NGO’s request to use microfinance after receiving a positive response from the Registrar regarding the NGO. In this situation, the NGO must submit copies of its annual reports from the previous three years with the application.
• A concerned NMDFC representative will visit the NGO and conduct an inspection based on the information given by the NGO.
• The NGO’s execution of the NMDFC’s Micro Finance Scheme will be evaluated in light of this report. When the NMDFC approves a loan, its ability to manage beneficiaries is also considered.
• Any application submitted by the NGO will be reviewed by the relevant authority for sanction, along with any additional information.
• The NGO would receive a letter of sanction detailing the financial support, including the utilisation time, repayment plan, interest rate, and other details.

Conclusion

Under the NMFDC micro finance scheme, the bank guarantee must be submitted as security for the grant cash. Otherwise, a deposit of a predetermined sum equivalent to 100% of the entire sanctioned loan amount must be made before the NMFDC loan would be issued directly to the NGO. Up to 85% of the loan will be provided by the NMFDC, 10% by NGOs and State Channelizing Agencies (SCAs), and the remaining 5% by the loan recipient.

Read Our Article: Benefits of Micro Finance Business in India