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Small loans boon for urban poor

The urban poor are increasingly depending on small loans of Rs 5,000 to Rs 10,000 from micro credit institutions to set up their own enterprises and move up the income ladder.

business Updated: Mar 16, 2010 22:20 IST
Mahua Venkatesh

The urban poor are increasingly depending on small loans of Rs 5,000 to Rs 10,000 from micro credit institutions to set up their own enterprises and move up the income ladder.

A recent report by Sa Dhan, an association of community development finance institutions, also states that almost 90 per cent of urban borrowers are self-employed on a small scale, while day labourers are also beginning to borrow from micro credit institutions.

Demand for micro credit is shooting up in urban areas. Against a total loan portfolio of over Rs 6,000 crore in 2008, the credit amount stood at Rs 11,734 crore in 2009 — an increase of 95 per cent. However, overall penetration of micro credit still remains low.

“The urban borrowers are increasing in numbers and they typically require larger loan amounts compared to the rural borrowers,” Mathew Titus, executive director of Sa-Dhan, told Hindustan Times. The average loan size has increased from Rs 5,000 to Rs 10,000.

Titus, however, added that the cost of operation for micro finance institutions is higher in urban areas compared to rural markets.

“The required micro finance infrastructure in urban areas is still very poor,” he said. Although 71 per cent of the poorest districts of the country are covered by micro finance institutions (MFIs), the penetration in some of these regions is not adequate.

In 2007, only 58 per cent of the poorest areas were covered. MFIs are present in most of the districts where the National Rural Employment Guarantee Programme is in force.