A proposal the banks can’t refuse: By Sandip K. Dasverma

Background:
For nearly three years me and some of my friends are building a case for, bank loans for the needy and meritorious students of Orissa, in professional colleges. This is to facilitate easing the way for the meritorious and needy students, from lower economic classes, that are trickling up the system ladder. They are from families whose kids are 1st time in the colleges or students whose parents belong to the extreme poor. They are hardy enough to have survived the 90% drop out rate of schools, in spite of extremely deprived family backgrounds. If aided financially these kids go on to earn monthly salaries which are equal to their annual financial aid. They are a very good investment for any Bank.
All public sector banks, including SBI, have on policy accepted that unsecured loans up to 5 lakhs, can be granted, to these first class students.

In practice however this has not happened for various reasons, some of which are discussed below.

A. Two reasons that we have found from personal investigation, are:
1. Graft, i.e. by only subjecting the kids and their families to a run around, an extra documentary price (bribe) can be extracted from the concern parties. However this leads to two unintended consequences for the banks.
a. The needy don’t get the loan they need, in a timely manner.
i. A few give up their studies.
ii. Most pay the extortion money from the money they borrow, since they don’t have resources to pay the bank personal.
iii. Thus bitter they make up their mind to punish the extortionists by not paying back the money.
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.
b. A few kids from better off families take loan, (not paying bribe but due to the influence of their family and friends), to have ‘fun’ in the college. They take the money aware that they don’t need the money but also aware that using their influence they can avoid paying the money back.
c. SBI and other public sector banks have in case of defaults end up holding responsible personally, the managers of the branches sanctioning these loans, per commercial practice.
d. Faced with the situation honest bank managers have started to avoid granting such study loans, altogether or have insisted on property security.
e. The real poor have thus only two ways left for them:
i. To find a relative to pitch 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.


B. 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 the 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 money as soon as they are capable, so the fund grows.

C. How too prevent default and reduce risks of student loans to SBI, some ideas:
1. Self Help Groups (SHG ) of the loanee students are formed from 1st year onwards, who are expected to persuade the graduating student to return the money – so they can get loan (using the general principles of SHG). All four class SHGs meet in the college every quarter to share experience and discuss difficulties, with the local Bank managers and student deans.
2. Since the graduating class and next junior class students are in the college at the same time, they will have enough clout to persuade their seniors, to return loan.
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 can be kept in the loop, to extend any help necessary in this regard.
5. Most importantly, the seniors who help the juniors, providing contacts and network for jobs/employment, can and will also help pressurize, the less than one in 100, who default.
6. Civil society members and eminent persons like the FFE facilitators can ensure that banks will get the addresses of the students, after they graduate.
7. Start it at a few eminent colleges like NIT, Rourkela and test the operations, then fine tune and move them to other colleges later.

D. What Banks can do to improve their public images and eradicate genuine grievances, and to help the needy while only following their avowed policy of giving Unsecured Loans:
They can take a few very simple steps to avoid administrative hassles and improve transparency:

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. Ask each branch to publish their own list of:
i. Unsecured loans granted
ii. Secured loans granted.
iii. Number of pending applications

c. Publicly display at each bank branch:
i. a list of names of loans status in each category, as in item b (above), 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 Excellence, (which they really are) and qualify anyone admitted there for bank loans, such as:
a. NIT, Rourkela, (unsecured loan of up to 1.2 lakhs in 4 years)
b. UCE, Burla, (unsecured loan of up to 1.2 lakhs in 4 years)
c. IGIT, Samal, (unsecured loan of up to 1.2 lakhs in 4 years)
d. CET, Bhubaneswar, (unsecured loan of up to 1.2 lakhs in 4 years)
e. SCBMCollege, Cuttack, (unsecured loan of up to 1.5 lakhs in 5 years)
f. VSSMCollege, Burla (unsecured loan of up to 1.5 lakhs in 5 years)
g. MKCGMCollege, Berhampore,(unsecured loan, 1.5 lakhs in 5 years)
h. Ravenshaw College, Cuttack, (Unsecured loan to Rs. 10 thou per year to maximum Rs. 40 thousand)
i. BJB College, BBSR, (Unsecured loan to Rs. 10 thou per year to maximum Rs. 40 thousand)


Lastly, the Alumni Associations of each of these institutes could activate themselves and assist to resolve these issues that have emerged due commercialization of Education. Cost of education have risen beyond the resources of the society for which, this education is meant.
The Alumni Associations have to step in support of the poor and meritorious students and to facilitate the sanction of bank loans.