Kudumbashree Interest Subvention Scheme for NHGs

What is the Kudumbashree Interest Subvention Scheme?

Kudumbashree Interest Subvention Scheme is the arrangement that lets a Neighbourhood Group (NHG) borrow from a commercial bank at an effective rate of 4 per cent rather than the bank's normal lending rate. It is run by Kudumbashree, the Government of Kerala's State Poverty Eradication Mission, as part of the Mission's microfinance work.

Kudumbashree's microfinance model rests on three layers of money. First, members save weekly into the NHG's thrift fund. Second, the NHG lends that pooled thrift to its own members. Third, and this is where the subvention applies. The NHG borrows from a bank under the Linkage Banking Scheme, multiplying what it can lend far beyond its own savings.

According to Kudumbashree, all Kudumbashree NHGs are eligible for interest subvention to avail the loan facility at an interest rate of 4 per cent on credit up to Rs 3 lakh, a benefit available to NHGs from April 2016. Separately, Kudumbashree facilitates bank linkage for agricultural activity and provides an interest subvention of 5 per cent on loans up to Rs 1,00,000, which brings a 7 per cent agricultural loan down to an effective 2 per cent for the group.

The bank linkage programme has made inclusive growth possible by providing easy access to bank loans without any physical collateral. That single feature is what makes the scheme meaningful: the households in an NHG typically have no asset a bank would accept as security, and the group's discipline substitutes for it.

Who is eligible for the interest subvention?

Your NHG can claim it if:

• It is a registered Kudumbashree Neighbourhood Group, affiliated to its Area Development Society and Community Development Society.
• It holds regular weekly meetings with recorded attendance and collects thrift consistently.
• It maintains proper books; minutes, savings ledger, internal loan register and bank account statements.
• It has been graded and found linkage-worthy. NABARD has developed a 15-point index for rating NHGs, on the basis of which they are allowed to link with banks under the Linkage Banking Scheme.
• It has taken, or is taking, a bank linkage loan within the eligible limit, up to Rs 3 lakh for the 4 per cent rate, or up to Rs 1 lakh for the 5 per cent agriculture subvention.
• It repays promptly. Subvention is a reward for prompt repayment, not an unconditional entitlement.

Your NHG cannot claim it, or is not eligible, if:

• It is not affiliated to the Kudumbashree structure. Informal savings groups outside the ADS and CDS network are not eligible.
• It is in default, or its repayment record is irregular. A defaulting group loses the subvention benefit.
• Its books are not maintained, so the grading exercise cannot be completed.
• It is borrowing above the eligible ceiling. Amounts beyond Rs 3 lakh attract the bank's ordinary rate with no subvention on the excess.
• An individual member is applying separately. The subvention attaches to the group's linkage loan, not to a personal loan taken by a member from the same bank.

What documents are required?

How to apply for the interest subvention as an NHG

1. Keep the group in order. Hold weekly meetings, collect thrift without gaps, record every internal loan and its repayment, and keep the minutes book current. Every later step depends on this.
2. Get the NHG graded. Grading against the NABARD 15-point index is what qualifies the group to link with a bank under the Linkage Banking Scheme. The ADS and CDS coordinate the exercise.
3. Pass a resolution in the NHG meeting for the linkage loan, stating the amount sought and the purpose, and route it through the ADS to the CDS.
4. Approach the linked bank branch with the CDS recommendation, the grading record, the minutes book, the savings ledger and member KYC.
5. Draw the loan into the NHG's bank account after sanction, and on-lend to members under the group's own internal rules and repayment schedule.
6. Repay on schedule. The subvention is claimed against the group's loan account by the Kudumbashree Mission with the bank, and the group sees the benefit as reduced interest rather than a cash payment.
7. Reborrow at a higher level. A clean repayment record raises the group's grading and its next linkage limit, which is how NHGs progressively increase what they can access.

How much does the subvention actually save?

The saving is the gap between the bank's rate and the effective rate the group pays. On credit up to Rs 3 lakh, the effective rate for the NHG is 4 per cent. If the bank's own lending rate for such a loan sits several percentage points higher, the group's interest cost falls proportionately, and over a multi-year repayment on a Rs 3 lakh loan the difference is substantial for households whose alternative was an informal moneylender charging many times that.

On agriculture loans up to Rs 1 lakh, the 5 per cent subvention applies to a 7 per cent loan, leaving the group paying an effective 2 per cent. This is the cheapest credit available to a Kudumbashree group, and it is restricted to agricultural activity, which is why Kudumbashree's collective farming groups. The Joint Liability Groups leasing land for cultivation — are its heaviest users.

Kudumbashree also operates an area incentive and interest subsidy framework alongside the linkage subvention, so the exact benefit a particular group receives depends on the components applicable to it in that year. The CDS is the office that can confirm which apply.

How to check your NHG's position

1. Ask the NHG secretary for the current loan outstanding, the interest debited and the repayment schedule.
2. Check the bank passbook or statement for the group account to see the interest actually charged and any subvention credit posted.
3. Confirm with the CDS that the group's grading is current and that the subvention claim for the group has been included in the Mission's submission to the bank.
4. Escalate unresolved discrepancies to the Block Mission and then the District Mission Coordinator.

Why NHGs lose the subvention benefit

• Irregular meetings and thrift collection, which pull the grading score down and stop linkage before it starts.
• Default or delayed repayment, which is the direct disqualifier since the benefit is conditional on prompt repayment.
• Books not maintained. A missing minutes book or an unreconciled internal loan register makes grading impossible.
• Borrowing above the eligible ceiling, where the excess carries the bank's full rate.
• Group inactive or split, so the entity that took the loan no longer functions.
• Members treating the loan as a grant. The commonest internal failure is a member who does not repay the group, which then cannot repay the bank, which ends the benefit for everyone.

Key dates and how the cycle works

There is no application season. Subvention applies to eligible linkage loans as they are drawn and repaid, and the practical calendar is set by the bank's sanction cycle and the group's own repayment schedule. Groups planning a seasonal activity, farming, festival production, a school-season trade; should begin the grading and CDS recommendation process months ahead, because a linkage loan sanctioned after the season has begun is of limited use.

Help and grievance redressal

• NHG secretary and ADS, the first level for any question on the group's loan and interest.
• CDS office at the panchayat or municipality, which routes linkage recommendations and subvention claims.
• Block Mission office and the District Mission Coordinator for escalation.
• Kudumbashree State Mission, TRIDA Building, Chalakuzhy Road, Medical College P.O., Thiruvananthapuram 695011. Phone 0471 2554714. Portal kudumbashree.org.
• The lending bank branch for disputes about interest actually debited.

No physical collateral is required for an NHG linkage loan, and no payment to any individual is needed to obtain a subvention. Any demand of that kind should be reported to the District Mission Coordinator.