The interest subsidy is likely to be consistent with the benefits of self-help groups where female borrowers take loan at 7% interest and the government bears the difference between lending rate of banks and the rate charged to borrowers, said people familiar with the matter.
The house and Minister of Urban Affairs provides the final touches to the scheme, which is expected to be ready within a month.
Finance Nirmala Sitharaman announced it to make it easier to access credit for street vendors who are among the worst affected by Covid-19-related closure and need financial help to restart their business.
Bank credit facility for initial working capital up to £ 10,000 is provided for both urban and rural areas, the government said, expecting 50 lakh to benefit from it.
Asked if it would be cost-effective for banks to lend such a small amount, a senior manager with a large public bank said loans under the Mudra Shishu scheme can go up to £ 50,000 per annum. Borrower.
Separately, the government has announced a 2% interest subsidy in the next 12 months after the repayment of the loan repayment moratorium for those who repay loans on time.
Sa-Dhan, an industry organization for microfinance firms, has made a space for a dedicated fund of Rs 3,000 crore for its members so that they can participate in the street vendor scheme.
“As such MFIs are the most suitable institutions to implement this credit facility. Sa-Dhan has already started discussions with the city’s livelihood mission from the Ministry of Housing and Urban Affairs to operationalize the scheme, ”its chief executive P Satish said in a letter to the finance minister.
However, several major MFIs have expressed concern.
“MFIs may be interested as they have the reach and expertise to offer smaller loans. Unless there is a credit guarantee as well as liquidity and marginal support from the government, the scheme will be difficult to implement for suppliers who do not have fixed stalls, ”said a CEO of a large NBFC MFI.
Although the scheme’s nuances are still being worked on, it is learned that local urban organizations will identify the suppliers who may not fare well with lenders from a risk perspective. “We can only consider lending to them if the program is financed and viable from a risk and financial perspective,” said another CEO of a microfinance company.
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