Impact of Finance Budget on Microfinance Sector

Microfinance cos sniff big biz

Although the interim budget does not contain any specific step for rural entrepreneurs, the government’s focus on rural development has brought cheer to micro-finance institutions (MFIs).

“The budget has a definite focus on rural India with a commitment to financial inclusion with increased job opportunities, better housing, infrastructure and a 50% reduction in BPL population by 2014,” said M R Rao, COO of SKS Microfinance. “This is in line with the mandate of MFIs and will mean an accleration in our efforts.”

India’s Finance Minister Pranab Mukherjee arrives at the Parliament

with the Budget

The budget’s reiteration of the decision to set up the Unique Identification Authority of India under the Planning Commission a move notified last month and the plan provision of Rs 100 crore for this has also excited MFIs.

“Establishing such a universal identity system will enable the 70% of Indian population involved in the informal sector obtain access to government schemes. In particular, this identity will facilitate financial inclusion of the masses which is currently constrained by KYC (know-your-client) norms,”
said P N Vasudevan, MD of Equitas Micro Finance.

The trouble is also that the rich and powerful in rural areas manage to corner a lot of the benefits for themselves. Many of them, for instance, join multiple self help groups, giving different addresses, and raise money from all of them. “They get this money for nominal interest rates like 7% which they put in chit funds where they get returns of 30% or more. This is a big fraud on the system. A biometric identity card can ensure that benefits go to the right people,” says V S Somanath of Nano Ventures, a MFI.

MFIs support income generating activities of its members including livestock, agriculture, trade (such as vegetable vending), production (from basket weaving to pottery) and new age businesses (beauty parlour to photography).

“Overall the budget is aimed in the right direction and with a larger focus on execution excellence and involvement of private sector in delivery, the true benefits of inclusive economics can percolate to the people at the bottom of the pyramid and thereby enable a more sustainable economic development,” said Vasudevan.

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