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Foreign employment loans a success in rural mid-west
BHAIRAHAWA, JAN 20 - The Agriculture Development Banks in the rural-mid west reeling under low credit demand and even lower recovery rate have found a lifeline in soaring demand for foreign employment loan.
So much so that up to 40 per cent of their investment portfolio has been diverted to meet the demand for foreign employment loan. This is a collosal issue for a bank established solely to finance agricultural activities.
Majhagawa sub-branch of the Agriculture Development Bank (ADB/N), located in the outskirts of this western city had targeted to finance up to three million rupees in the current fiscal year to the youth seeking foreign employment. However, just five months after the policy announcement, the branch exhausted the allocated money and had to request the centre to increase the fund.
"We have requested the centre to allocate an additional fund of three million rupees," said Bechan Prasad Gupta, manager of the ADB/N sub-branch.
The bank had first ventured into foreign employment lending in 2001, when it started lending in non-agricultural sectors. The sector is already the second largest business for the bank. Its potential has been proven not only in terms of loans distributed, but also in terms of recovery.
Since the start of the business, the sub-branch has already floated over four million rupees in loans out of which only Rs 11,000 remains to be recovered, said Gupta. " This is an excellent recovery rate as compared to other sectors,"
he added.
Gupta also informed that the sub-branch has been collecting some 40 percent of the principal in the first instalment within three to four months of lending.
The bank has been issuing loans against employment certificates of manpower agencies and any acceptable collateral. While branches and sub-branches issue loans up to Rs 100,000 per applicant, loans for larger amounts is regulated through the regional office.
"However, borrowers in the category have been mostly asking for loans in the range of Rs 80,000 to Rs 100,000, hence, services are covered by branches and sub-branches," said Prakash Neupane, ADB/N regional office, Rupandehi.
According to him, the popular destinations of aspirant foreign jobholders from the rural part of the region are Malaysia and the Gulf countries.
Officials at the bank had ventured into foreign employment lending after its agriculture finance started to slide. With rural populace disenchanted with declining agricultural productivity and lower rate of return partly due to cheaper Indian imports, the bank was hardly meeting its targets in agriculture loans.
At present, foreign employment lending stands at a ratio of 40:60 against agriculture lending, according to officials.
Experts here stated that the experience of the ADB/N western regional office shows the latest changes in trend coming in the rural banking businesses. "To pessimists this might mean threat of rural people turning away from production activities."
They relate the trend as a good one, for it reflects higher accessibility of rural people to the formal sector lending. "Otherwise, people were forced to take loans from informal sector at interest rates as high as 40 per cent per annum," they said.
The ADB/N’s experience could also give significant inputs to central-level officials and planners who have been working out measures to expedite implementation of collateral-free loan schemes for foreign employment.
While means to ensure recovery of loans is a major concern for the planners, bank officials here say that it should not be their major concern. " It can be taken care of with minor payback arrangement while remitting back their income through official channels."
"Our experience shows that if loans go to the really needy people, they will generously pay it back," said officials.Posted on: 2004-01-21 03:27
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