Priority Sector Lending is an important role given by the Reserve Bank of India (RBI) to Scheduled Commercial Banks and Foreign banks in India to ensure assistance from the banking system to those sectors of the economy which has not received adequate support of institutional finance. Along with other amendments to the Priority Sector Lending (PSL) guidelines lending for sanitation was made a part of PSL on 23.04.2015 as a part of Social Infrastructure, and this included bank loans up to a limit of ₹5 crore per borrower for building social infrastructure for activities namely schools, health care facilities, drinking water facilities and sanitation facilities in Tier II to Tier VI centres.While it is very welcome there are some challenges to fulfilling this spending criterion.
- Lack of awareness amongst the banks, financial institutions, intermediaries and the beneficiaries on the inclusion of sanitation in PSL, and the various avenues to access and utilize these funds.
- Lending small ticket loans for toilet construction can be a costly exercise for banks, and this creates a demand for alternative delivery mechanisms such as Micro-Finance Institutions (MFIs) and Self-Help Group (SHG) Federations. In India, there are over 54 million clients attached through various SHG federations and more than 6 million clients with MFIs.
This being said, MFIs often perceive sanitation loans as consumption spending, and not income enhancing, and accordingly assign higher risks to these loans. This makes them wary of lending. There is a tremendous need to change this thought through capacity-building of MFIs to show the proven impact of sanitation on improved earnings
- Community mobilization needed to create preparedness for taking loans.
- Last mile connectivity in receiving funds in a timely manner, and in accessing supplies and resource people to build the toilets.
- Create links between district, block, and GP level governments, for smoother release of incentives/subsidies
- Work with technology providers in direct bank transfers, payment banks where money can be pulled out and directed to the intermediate, and repayment of money going from government to MFI. As costs reduce, possibly interest rates on these loans for the beneficiaries could lessen.
- Attract more MFIs to sanitation through capacity building of the opportunities
- Support turnkey solutions: help in the procurement of materials, mobilization campaigns, release of subsidy, government alignment, source/build capacity of contractors and masons, and standardized toilet design and cost.