National Minorities Development And Finance Corporation (1994)

Policy Update
Devshi Satish Mishra

Background

National Minorities Development & Finance Corporation (NMDFC) is a national-level apex body for the benefit of Minorities as defined under the National Commission for  Minorities Act 1992, and was set up on 30th September 1994, as a not-for-profit company under Section 25 of the Companies Act 1956 (now Section 8 of the Companies Act,2013). The minorities recognised under Muslims, Christians, Sikhs, Buddhists, Parsis, and Jains. Under the NMDFC program, preference is given to Artisans and Women.

Functioning

NMDFC has two channels to reach the target groups recognised by them:

• State Chanelising Agencies (SCAs). SCAs are the main channel. They are nominated by the respective State Governments. At present, there are 39 operational Channelising Agencies.

• Non-Governmental Organisations (NGOs). NMDFCuses NGOs to reach target groups via Self-Help Groups (SHGs). The eligibility criteria for the selection of NGOs are as follows:
  • More than 3 years old
  • Apolitical
  • Financially Sound
  • Engaged in socio-economic activities with a minimum of one year of experience in thrift and credit

At present, the families having annual income up to Rs. 98,000 in Rural areas and Rs. 1,20,000 in urban areas are eligible under the NMDFC schemes. As a special initiative of NMDFC, a new annual family income eligibility limit of up to Rs. 6.00 lacs has been introduced with effect from September 2014 by adopting the “Creamy Layer” criterion currently followed amongst the OBC community by the Government of India.

With the objective of promoting economic activities amongst the backward sections of notified minorities, NMDFC provides two kinds of schemes for the target groups. One is the lending schemes, aimed at providing financial assistance to the target groups for various purposes, such as job-oriented education, quick credit to women SHGs, term loans for livelihood, etc, and the other is the promotional scheme, which is meant to promote the target groups, so that no gap exists between them and other members of society. This is done through, for instance, providing skill-based training, supporting minority craftsmen via exhibitions, as well as design and skill development programmes for minority craftspersons.

Performance

• Since its inception, the NMDFC has disbursed an amount of Rs 8008.43 crores, covering over 22.01 lakh families under the schemes of NMDFC till 2023. The details of the same are as follows:
  • With a paid-up capital of Rs 2524 crores, NMDFC has extended loans worth over Rs 8008.43 crores, which is over three times the recycling of its paid-up share capital.
  • Under the Term Loan scheme, financial assistance of Rs 4780.66 crores has been given to over 6.11 lakh beneficiaries, spread over twenty-five States and five Union Territories. This includes the disbursement of Rs. 422.92 crores for over 42,583 beneficiaries under the Education Loan scheme.
  • Under the Micro-Finance scheme, an amount of Rs 3227.77 crores has been disbursed to over 15.89 lakh families.
• An MoU was signed with ICICI Bank for the Loan Automation software in 2022. Moreover, another MoU was signed with ICICI Bank for convergence on providing credit support by NMDFC to the candidates of Minority Communities trained by ICICI Skills Academies.
• NMDFC has compiled a Catalogue of Crafts Products made by Artisans belonging to Minority Communities. Further, a compilation of various online opportunities has also been placed on the NMDFC website to facilitate marketing avenues for the Artisans.
• Bulk SMS service has also been started by NMDFC to disseminate information about the schemes and programmes among the already registered beneficiaries.
• The Successful Implementation of the e-Office was done in NMDFC during September 2022.
• NMDFC has also extended support to several projects in the areas of healthcare & education, including providing Ambulances, setting up RO plants in Hospitals, Providing Sanitary napkin-making machines, setting up computer centers in Schools, Support to the armed Forces for their Paraplegic Rehabilitation Centre, etc.

Impact

Based on a socio-economic impact study of beneficiaries financed between F.Y. 2018-19 and 2020-21 by NMDFC, the schemes implemented by the National Minorities Development and Finance Corporation (NMDFC) have demonstrated a significant and multifaceted positive impact. The results highlight tangible economic empowerment, enhanced social equity, skill development, and improved market access for minority communities across India. 

• Income Growth and Savings. A majority of beneficiaries of lending schemes reported increased income, with 56% from Term Loans and 67% from Micro Finance seeing a rise. The average income increase was approximately 15-15.5% for these schemes. This has also improved their financial stability, allowing 45% of Term Loan recipients and 57% of Micro Finance beneficiaries to save a portion of their new earnings.
• Fueling Small Businesses. The schemes successfully fueled entrepreneurship, with 77% of term loans supporting small businesses. The funds were used with high utilization rates of 91% for Term Loans and 80% for Micro Finance for their intended purposes.
• Asset Creation. A significant number of beneficiaries were able to create assets, with 42% of Term Loan recipients successfully expanding their businesses and acquiring assets beyond the loan’s primary purpose.

• Women’s Empowerment. Female participation in the Term Loan scheme grew from 31.9% to 43.7% over the three years (2018-19 to 2020-21), and females consistently secured more Education Loans than their male counterparts. The Micro Finance scheme, aimed at marginalised women, was overwhelmingly utilised by them. Additionally, the women-exclusive Mahila Samriddhi Yojana (a scheme under Lending Schemes) saw 58% of its beneficiaries report an income increase after receiving training and micro-credit.
• Strong Rural Outreach. The programs showed a clear commitment to reaching underserved areas, with over 78% of Term Loans and 88.5% of microfinance loans being disbursed in rural regions. However, more granular data is not available.

• Skill to Employment. The Kaushal Se Kushalta (KSK) and Mahila Samriddhi Yojana (MSY) schemes (schemes under Lending Schemes) equipped participants with marketable skills, with 64% of KSK beneficiaries and 58% of MSY beneficiaries reporting an income increase. Moreover, the training was effective and well-received. The KSK scheme’s training quality received a high average rating of 3.89 out of 5 from beneficiaries.
• Education to Employment. The Education Loan scheme successfully facilitated access to higher education. A survey showed that of the graduates who had completed their courses, 79% found employment, primarily in the private sector.

• Bridging the Market Gap. Promotional schemes, such as the Marketing Assistance Scheme and Hunar Haat, were crucial in connecting artisans directly with markets.
• Sustainable Ecosystem. These platforms enhanced the marketing capabilities of artisans by providing direct access to customers, thereby creating a sustainable marketing ecosystem for traditional crafts.

Emerging Issues

Despite an overall good performance, some issues still exist. There is a lack of a unified, streamlined digital system, leading to inconsistent processes across different State Channelizing Agencies (SCAs). Moreover, a significant digital gap still exists, with underutilization of existing tools like the MILAN software. 

Current outreach methods are not fully effective, requiring alternative channels like NGOs and educational institutions to reach more beneficiaries. Additionally, the absence of a robust tracing mechanism for education loan beneficiaries after graduation makes loan recovery difficult. A lack of post-loan business support and mentorship for beneficiaries is also an issue, which increases the risk of venture failure and loan defaults.

An inconsistent performance has also been noted, highlighted by high delinquency rates in some SCAs. Moreover, the availability of a more detailed analysis of the high delinquency rates (such as geography, fund misuse, etc.) could help narrow down the factors responsible for the same and help develop more effective interventions.

Way Forward

Based on the performance and challenges identified, the following measures are recommended to strengthen the impact of NMDFC:

• Standardised and Digitised Operations. SCAs need to strengthen their data analytics practices to better predict trends, assess loan performance, and manage risk. This can be achieved by implementing a “One Nation, One Application” system to create uniform processes across all State Channelizing Agencies (SCAs), and by enhancing digital integration by promoting awareness of the MILAN software and developing a mobile app for convenient loan repayments.
• Improving SCA Performance. There is a need for performance-based incentives and regular training to improve efficiency and reduce defaults. This can be done by introducing performance-based incentives for SCAs to encourage lower delinquency rates and bolstering their capabilities through periodic training on best practices, technology use, and customer engagement.
• Strengthening Beneficiary Management. Implementing a robust tracing mechanism for education loan beneficiaries to improve post-graduation recovery rates and expand outreach by collaborating with NGOs and educational institutions to reach a wider audience will help strengthen beneficiary management.
• Enhancing Post-Loan Support. Reducing loan defaults by offering structured pre- and post-loan business support and mentorship will ensure the long-term viability of beneficiary ventures.

References

About the Contributor
Devshi Satish Mishra is a Research Intern at IMPRI and a student at the University of Delhi pursuing Economics Honours. 

Acknowledgement

The author sincerely thanks Ms. Aasthaba Jadeja and other IMPRI fellows for their valuable contribution.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.

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