One of my colleagues has written a blog expressing his surprise on the low repayment of Indira Awas Yojana loans. It got me reading on the scheme and what surprised me was not that the scheme was actually grant-based, which explains why the beneficiaries don’t “repay”, but that it also has a loan component to it whereby IAY beneficiaries can avail loans from banks and other financial institutions. Interestingly, loans are available for much the same purposes that the grants are disbursed! Further, nothing in the guidelines mentions who repays these loans and what happens if the loan-taker defaults. This prompts two questions: why would someone with access to a grant avail a loan, and why would they repay the loan when there are no deterrents to default? A welfare scheme, such as the IAY, that is both grant-based and credit-based, targeted at a homogenous group of beneficiaries and given for the same purpose, is more susceptible to corruption.
The IAY, like most other government schemes, is riddled with corruption. Intended beneficiaries, SC, ST and BPL categories, need to appeal to block officers, usually through a village tout, to include their names in the list of applicants, and also to the cashier for release of money. Similarly, a little “pocket money” can be given to buy silence for non-repayment of loans. In a book titled “Consumerism, Crime and Corruption” MG Chitkara quotes Chanakya, “money misappropriated by government officials from state funds is as hard to ascertain as it is to find out how much water a fish has drunk from a pond”. While Chanakya lived and wrote several centuries ago, what he said holds true to this date. Most of India’s welfare schemes have been prone to corruption, not just for poor implementation but also for poor design and lack of clarity of objectives.
3 comments:
Excellent point.
I was always under the impression that the loan and grant portion of IAY money are tied -- i.e. beneficiaries of IAY are given a small grant (typically in the form of housing materials such as bricks) along with a small cash loan (which is almost never repaid).
As per the IAY guidelines:
3.3 Loan for IAY Beneficiaries
In addition to the assistance provided under the IAY, loan for construction of IAY houses or for up gradation of unserviceable kutcha houses can be obtained from the banks/other financial institutions. It will be the responsibility of the State Governments/DRDAs concerned to coordinate with the financial institutions to make available the credit facility to those beneficiaries who are interested.
3.4 Credit-cum-Subsidy for construction / up gradation of rural houses
Upto 20% of the total funds can be utilized for up gradation of existing kutcha houses and toward subsidy for construction of houses with credit from Banks/Financial Institutions. Credit-cum-subsidy will be provided subject to the following conditions:
(i) Rural households having an annual income of upto Rs. 32,000/- only.
(ii) Ceiling of subsidy under the Scheme Rs. 12,500 per household.
(iii) The upper limit of construction loan under this scheme will be Rs. 50,000 only. Credit arrangement will be as mentioned in para 3.3.
In the previous comment, I have posted the relevant guideline. What I understand of it is as follows:
The loan arrangement is under the credit-cum-subsidy (CCS) scheme, meaning that if a person opts to take the loan, the subsidy amount available to him is capped at INR 12,500. This is with the understanding that often it may not be possible to construct a house with INR 25,000. In fact low-cost housing models have struggled to provide habitable designs that cost as much. Of course, anyone can take a loan from any bank. But the point here is, I think, there are designated PSU banks that take up the CCS scheme to provide these loans. These banks also often prefer to extend these loans if there is a Panchayat or a NGO as an intermediary in the transaction.
The deterrents to default are not mentioned specifically in the scheme...dont think any scheme does. The deterrents are the usual ones and IAY doesnt have any special penalties. The borrower remains obliged to repay, naturally.
What the guidelines do not state and would be interesting to know is if the CCS scheme enables beneficiaries to borrow at lower rates and/or if the selection for a IAY grant stands like a collateral enabling a person to borrow, who otherwise would not be eligible. Or else, why does the scheme exist?
My impression is that it is in an attempt to segment the market that IAY introduced the CCS. Recognising that people may have different requirements, it provides the option of a add-on loan to the grant. In a way, the CCS is encouraging beneficiaries to take a loan to build a house and helping them in part to make the repayments through the grant component. It is also an attempt to reach out to a larger number of beneficiaries, since IAY funds at the moment are quite limited and sparse allocation has been one of the most commonly attributed problems with IAY.
All this is not to say there is no corruption. Beneficiary selection is by Gram Sabhas and there is widespread patronage. Grants are supposed to be released in installments and there is again substantial scope for corruption.
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