Skill Loan Scheme
Context
Skill Development Minister Jayant Chaudhary recently launched the revamped Model Skill Loan Scheme. This revamp follows Finance Minister Nirmala Sitharaman’s announcement to increase the loan amount for high-end skilling courses under the scheme from ₹1.5 lakh to ₹7.5 lakh.
Relevance:
GS-02 (Government policies and interventions)
Key Highlights
- Increase in Loan Limits: The scheme’s loan eligibility has been significantly raised from ₹1.5 lakh to ₹7.5 lakh, allowing students to pursue high-end skill development courses that were previously out of reach due to financial constraints.
- Previous Scheme Challenges: The earlier Credit Guarantee Fund Scheme for Skill Development, introduced in November 2015, faced several issues. As of March 31, loans amounting to ₹115.75 crore had only reached 10,077 borrowers. The low utilization was attributed to the inadequate loan size and rising course costs due to inflation.
- Broadening Lending Network: The revamped scheme has expanded its lending network beyond just Indian Banking Association (IBA) member banks. It now includes Non-Banking Financial Companies (NBFCs) and small finance banks, which will help in reaching a wider audience and providing loans more effectively.
- Addressing Inflation: By increasing the loan amount, the scheme aims to keep pace with the rising costs of skill development courses, ensuring that more students can access quality training and education without financial barriers.
- Enhanced Accessibility: The inclusion of NBFCs and small finance banks is expected to improve the scheme’s reach and uptake. This move addresses the issue of limited accessibility faced by both private and public sector banks under the previous scheme.
About Model Skill Loan Scheme :
- Introduction and Purpose: The Model Skill Loan Scheme, launched in July 2015, provides institutional credit to individuals pursuing skill development courses aligned with National Occupations Standards and Qualification Packs under the National Skill Qualification Framework (NSQF).
- Applicable Institutions: The scheme is applicable to all member banks of the Indian Banks’ Association (IBA), as well as other banks and financial institutions advised by the Reserve Bank of India (RBI).
- Eligibility: Indian nationals who have secured admission in courses run by Industrial Training Institutes (ITIs), polytechnics, schools recognized by Central or State Education Boards, colleges affiliated with recognized universities, or training partners affiliated with the National Skill Development Corporation (NSDC) or State Skill Missions.
- Loan Quantum and Coverage: Initially, the loan range was Rs. 5,000 to Rs. 1.5 lakh, now increased to Rs. 7.5 lakh. The loan covers course fees, assessment, examination, study materials, etc., with no minimum course duration required.
- Repayment Terms: Loans up to Rs. 50,000 can be repaid within 3 years; loans between Rs. 50,000 to Rs. 1 lakh within 5 years; and loans above Rs. 1 lakh within 7 years. A moratorium period is provided for the duration of the course.
- Interest Rate and Collateral: Interest rates are capped at 1.5% per annum above the repo-linked lending rate (RLLR) or another external benchmark rate per RBI guidelines. No collateral is required from the beneficiary.
- Credit Guarantee: The Ministry of Skill Development and Entrepreneurship (MSDE) implemented the Credit Guarantee Fund for Skill Development (CGFSSD) in November 2015. The National Credit Guarantee Trust Company (NCGTC) administers it, providing a guarantee of up to 75% of the outstanding loan amount for banks at a nominal fee not exceeding 0.5%.
- Loan Access Expansion: The revamped scheme has broadened its lending network to include Non-Banking Financial Companies (NBFCs) and small finance banks, enhancing access to loans for skill development.
Significance
- The revamped Model Skill Loan Scheme is a critical step towards addressing the financial barriers to high-end skill development in India. By increasing loan limits and expanding the lending network, the government aims to ensure that more individuals can access quality skill development courses, thereby enhancing their employability and contributing to the country’s economic growth.
- It aligns with the National Skills Qualification Framework and aims to create a more skilled workforce that can meet the demands of various industries.
