For more than two years me and some of my friends are pushing for bank loans for the needy and meritorious students, of Orissa, in professional colleges.
The public sector banks, including SBI, have on policy adopted that up to 5 lakhs, they will give loan, without any security, if a student is a first class student. B
In practice however this has not happened. Though as a publicity stunt they have
competed with each other to help students such as Dipak Das.
Two reasons that we have found from personal investigation, are:
1. Graft, i.e. by only making kids and their families run, a price can be extracted.
2. Past history:
a. It has been found that some students after taking loan for study default in paying back the loans. This has been highlighted by the 1st category officers above to justify their harassment. Additionally SBI and other public sector banks have in case of defaulters ended up in holding responsible personally SBI managers of the branches for these loans, per commercial practice. Faced with the situation other bank managers have started avoiding granting such study loans, altogether or have insisted on security.
The real poor have thus only two ways left for them:
i. To find a relative to come in and provide the security.
ii. Just give up the hope of higher studies after trying for a few months or bribe their way out of the jam. And many don’t have even money to pay the bribe. They pay bribe from the loaned money and are so bitter, that they are very reluctant to pay back the money to the bank
Thus the ‘unsecured’ loan for meritorious and poor students have fallen by the way side. This has devastated impoverished states like Orissa, where first kid in the college in many economically backward families and in backward areas are reaching colleges
Some of us have seriously looked at the situation. One solution is to create a corpus fund of say couple of lakhs and provide the security to the Banks to provide loans. This way a much smaller amount of money can provide bank security to much larger amount of Bank loans.
Example: Let us say college C’s alumni raise a fund of 10 lakhs. If we give this money away as scholarship to 40 people (@25 thousand per year) it will get finished in a year. However if we give it as loan to same 40 people, all we have to do is to continue for 4 more years and then it will repeat itself without any external money.
So 40 lakhs will perpetuate itself to provide for 40 students every year.
Still better would be to use these 10 lakhs and keep it in a bank as a security deposit. Or create a corpus fund from which will be used as a security. In this case 10 lakhs can be used as security money for 40 students each year and next year’s money can be used for another 40 and similarly so 160 students can be supported and the cycle repeated.
The other alternative will be to insure the loans and pay insurance from the earnings of the 10 lakhs.
I would like to have banks look at it and see what the holes in this argument are.
Advantages of alternative method:
1. Security money for say 160 students who take loan from the banks, without paying out the money.
2. Use the money’s yearly interest to pay the insurance premium for the student loans, thus leveraging the money to get loans for much higher number of students than the 40 otherwise possible.
Basic philosophy in promoting bank loan are:
• Students spend their time in studying and not waste their time to run to the banks.
• If they are admitted to, say NIT, and evaluated to have financial need, as per a standard, they are ensured loan.
• They pay back when they get job. If they don’t market interest are charged to them rather than subsidized student loan rates. These days good students, who go to good Engineering colleges, are getting jobs even before they leave college.
• They pay back the bank loan and insurance money as soon as they are capable, so the fund grows.
How too prevent default and reduce risks of student loans to SBI, some ideas:
1. We create SHG of the students from 1st year onwards, who are expected to persuade the passed out student to return the money – so they can get loan (using the general principles of SHG).
2. Since the senior most and next junior class students are still in the college at the same time as those who graduated out, and they still need money, they will have enough clout to push for repayment, by their seniors.
3. The SBI or other banks, which have a collection department, only need to get the address of the graduated students to ensure recovery. This can be easily ensured by the above non-traditional channels to reduce the risks involved.
4. Additionally, the students come one year later for the degree and convocation function. If college authorities are in the loop thus they can also help.
5. If we start it at an eminent college like NITR and test modus operendi we can fine tune and move them to other colleges, Most importantly, the seniors who help the juniors to network for jobs, will help pressurize the less than one in 100, who default.
6. Civil society members and eminent persons like the FFE facilitators can ensure that they will provide the addresses of the students, when they graduate.
What Banks can do to improve their public images and eradicate genuine grievances:
They can take few very simple steps:
1. Every year publish a budget their target of lone they want to sanction, on their web site.
a. With security
b. Without security.
2. Between September and March publish every month on web site, the progress:
a. Number of Applicants
i. For secured loans
ii. For unsecured loans
b. No of loans sanctioned by each branch divided in to two categories:
i. Unsecured
ii. Secured
iii. No of pending applications
c. Provide at each bank branch a list of names of loans status in each category in item b, which can be seen by public, similar to documents for public view per provisions of Right to Information Act.
3. Declare a few eminent institutes of the state as institutes of eminence, (which they really are) and qualify anyone admitted there for bank loans, such as:
a. NIT, Rourkela,
b. UCE, Burla,
c. IGIT, Samal,
d. CET, Bhubaneswar,
e. SCBMCollege, Cuttack,
f. VSSMCollege, Burla and
g. MKCGMCollege, Berhampore,
h. Ravenshaw College, Cuttack,
i. BJB College, BBSR,
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