Bank that gives loans based on trust
Most financial institutions don’t want to lend to denotified tribes as they have no ID proofs. That’s where this Gujarat cooperative bank comes in to help
At the Kalupur Co-operative Bank in Ahmedabad, an estimated 600 of the 4,500 accounts dedicated to microfinance belong to members of the vimukta jatis, or the nomadic tribes, of Gujarat. It is the only independent bank in the country that issues loans to these tribals, many of whom do not have address proofs or stable permanent addresses let alone bank accounts or a steady income. Since 2006, the bank has issued loans of ₹50,000 to 100 nomadic tribals to purchase houses under a government scheme, and disbursed loans of a maximum of ₹25,000 to others to expand their small businesses at a 10 per cent rate of interest.
The bank is able to issue loans on trust alone, based on the long-term relationships that the Vicharata Samuday Samarthan Manch (VSSM), an Ahmedabadbased organisation run by Mittal Patel that devotes itself to nomadic denotified tribes, has established over 15 years.
Ambubhai Patel, the 76-year-old chairman of the bank, says he sends representatives to accompany the social workers from VSSM into the tribal bastis. The tribals are so far removed from the banking system that they do not know what a bank is, and would not enter one for fear of being arrested or evicted from the premises. They also do not have a strong concept of months and dates, so to get them to pay Equated Monthly Instalments (EMIS) for the loans that they take is a task in itself.
Ambubhai Patel encourages them to open savings accounts and shows them how to accumulate money in their accounts.
The VSSM workers collect instalments from the tribals who take loans outside Ahmedabad, where the bank has no branches, and make deposits on their behalf towards their monthly payments. Within Ahmedabad, the bank officials make the rounds to remind the tribals about payments. The bank also has a mobile van unit that travels into the rural areas, encouraging tribals to deposit whatever savings they may have accumulated into their bank accounts.
It’s a project that Mittal Patel has single-handedly taken up since 2004, when she began a movement to get tribals voting rights and identity cards, which are vital for their participation in public distribution schemes and reservation and welfare pro- The Nomadic identity crisis grammes. Apart from inducting them into the banking system, VSSM runs a corpus fund of ₹2.5 crore raised from donations, out of which they give interest-free loans to nomadic tribals.
While several government schemes across states have similar loan schemes on paper — such as the 1984-launched Vasantrao Naik Vimukta Jati & Nomadic Tribes Development Corporation in Maharashtra, and the two-decade-old National Backward Classes Finance and Development Corporation New Delhi — they require nomadic tribals to provide proof of address, be familiar with the banking system, and have a minimum monthly income ranging from ₹25,000 to ₹50,000. These schemes also involve filling forms, making visits to government offices, and verification procedures.
The Kalupur Co-operative model is more practical and more in sync with the needs of the tribals. As more private institutions are taking it upon themselves to educate and include tribals who are indigenously efficient at creating and selling goods, some nomadic tribes are taking to entrepreneurship by turning traditional practices into small businesses.
Vijaylakshmi Das, founder of the Friends of Women World Banking, an Ahmedabad-based institution for inclusive financial growth, calls tribal microfinance “the ultimate mystery of microfinance no one has been able to crack”. She says: “Barely one or two organisations across the country are providing microfinance for nomadic tribals. VSSM is one of the few.”
Other models attempted in undivided Andhra Pradesh failed. It’s a sector that has major potential for financial inclusion, but will need private players who will invest in building networks and long-term relationships with this floating population of about 110 million people.
Dr Saibal Paul of the Association of Community Development Financial Institutions, New Delhi, points out that VSSM today occupies a space that government and other private players have not been able to. “Firstly, nomads cannot opt for government schemes because they have no KYCS. Secondly, banks do not take such low-ticket customers seriously. Thirdly, the government rule keeps changing — sometimes it is voter card, pan card, now they seem fixed on Aadhar. And fourthly, there is apathy from financial institutions on seeing that they belong to the denotified tribes.”
Mittal’s involvement in this context goes beyond that of lender. She noticed that the nomads, with no sense of permanence, purchased food, groceries and raw material for one day at a time. This increased their travel and procurement costs, and lost them valuable discounts that they would get if they bought in bulk. One condition that the VSSM lays for the disbursement of loans is that the nomadic tribal taking a loan must purchase grocery items in bulk for a month and stock them.
This ensures that they are eating nutritious food and have a place where they stock their grain, inadvertently giving them a base. Second, the VSSM insists that they buy business supplies such as raw materials in bulk, which saves them multiple procurement trips, allowing them to focus on creating and earning through sales. The third condition is that they must put aside some savings. The tribals know that loans will only be issued to those who repay the previous loan, and this provides the incentive to repay.
With experience, the VSSM has learnt that tribals do not usually turn defaulters because they are dishonest, but because they don’t understand the system. So they step in with phone calls and site visits to remind them of last dates, with spot collection, and with tracking the wandering nomads’ locations. “What the government is doing is very little and banking systems are not tuned to the needs of these people. It’s not easy to teach them the ins and outs of banking,” says Ambubhai Patel.
Bhiku Ramji Idate, chairman of the Nation Commission for the Denotified, Nomadic and Semi-nomadic Tribes, has attempted to address this problem in the final report submitted by the National Commission for Denotified Tribes, Nomadic Tribes and Semi Nomadic Tribes this January. “The tribes were not able to take up schemes that were introduced, due to the lack of identity proofs. There has also been exploitation of tribes by those who take away funds allocated to them. There is a need to change what is accessible on the ground,” Idate says.
One government that has been attempting to break the deadlock is Telangana, through its finance minister Etala Rajender.
This January 5, Rajender announced that the state budget would allocate loans of ₹1 lakh each for nomadic tribesmen. “We were unable to take many schemes proposed in undivided Andhra Pradesh forward due to a lack of follow up from bankers, so we are now working on ways to overcome these obstacles the nomads face,” he says. Their schemes will bypass banks and offer direct transfers to the tribals.
There is clearly a need for governments to work with the banking system and private players to understand the challenges unique to the nomadic tribals of India, experts say, to provide them financial literacy and inclusion at least at a basic level.