The Small Industries Development Bank of India (SIDBI) signed a deal with Shri Kshetra Dharmasthala Rural Development Project (SKDRDP) to enhance credit delivery, the Finance Ministry said in a statement on Wednesday.
The MoU, signed in the presence of SIDBI CMD Mohammad Mustafa on Tuesday, with Karnataka-based SKDRDP aims to facilitate the flow of credit to micro enterprises promoted by the poor at affordable rates.
Though micro credit, which has emerged as a tool for empowerment of the poor, has grown in terms of volume over the years, the cost of credit has not come down.
"It is observed that microfinance institutions (MFIs) are still lending at a rate of around 20 to 24 per cent per annum to micro enterprises," the statement said.
Another problem is micro enterprises aspiring to scale up their operations are finding it difficult to access finance as MFIs generally do not lend beyond Rs 50,000 and banks are also largely staying away from lending big loans, it said.
"Thus, there is a critical gap in the market for the aspiring entrepreneurs to take it to the enterprise level," it said.
SIDBI's arrangement with the not-for-profit trust will facilitate flow of affordable credit to micro enterprises needing credit up to Rs 3 lakh and help in enterprise promotion.
SKDRDP has a client base of more than 4.2 million micro entrepreneurs and plans to deploy about Rs 500 crore under the present arrangement over the next two years.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)
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