Microfinance

MFIN responds to RBI’s Monetary Policy

MFIN welcomes the policy announcement for the microfinance sector announced by the RBI on tuesday.

“ The guidelines give much needed regulatory clarity to the microfinance sector and represent a big step forward in putting the microfinance industry on the path to recovery”, said MFIN CEO, Mr. Alok Prasad.

“RBI has taken a balanced and calibrated approach towards the evolving policy framework for the sector. The role played by Microfinance Institutions in promoting financial inclusion is increasingly being recognized and the need to support the microfinance industry is therefore a clear policy imperative. MFIN looks forward to a continuous process of dialogue with the RBI and evolution of a comprehensive regulatory framework for the microfinance sector”, added Mr. Prasad.

Microfinance Institutions Network India

MFIN is the premier representative body for the NBFC-MFI sector and has been involved with a number of initiatives promoting transparency, client protection and responsible lending.

Micro Finance Institutions Network (MFIN) is the self-regulatory organization (SRO) for the Indian Microfinance industry. It was established in October 2009 with the sole purpose of promoting the key objectives of Microfinance in India and establishing guidelines for responsible lending and client protection in the Microfinance industry. MFIN seeks to work closely with regulators and other key stakeholders to achieve larger financial inclusions goals through microfinance and to be an engine of inclusive growth for India. Currently MFIN member organizations consist of 46 of the leading NBFC/ MFIs whose combined business constitutes over 80% of the Indian microfinance sector.

MFIN under the Leadership of Mr. Vijay Mahajan (MFIN President & BASIX Chairman) and Mr. Alok Prasad (CEO of MFIN) aims to provide inclusive financial services to 100 million low income households by the year 2020. Since its inception MFIN has undertaken several initiatives to promote financial inclusion and greater transparency in the industry. A brief overview of some of the key initiatives is given below.

3 Comments

3 Comments

  1. Ramakrishnan Venkateswaran

    May 6, 2011 at 11:49 am

    While the work of MFIN is laudable, it is to be noted that the guidelines are not entirely positive for the MFIs. Some points to be noted:-

    1. Rs.50,000 cap on household is replaced by Rs.60000/-. This means on a monthly basis it is Rs.866/- and if the household has 3 working persons it is just Rs.289/- per person per month. No great difference. If 50000/- was not on so is Rs.60000/- although this is only in the Rural side.
    2. Poverty in the Rural India is higher than urban India. You mean to say that a person having household income of Rs.61000/- is not poor and not suitable for MFI business and this shall not be classified as MFI loans?
    3. Who will ascertain this? Banks? There are still many compliance issues with respect to following KYC properly on many banks, how will they be able to address this issue? Do they have the intent, time and wherewithal?
    4. RBI has broadly agreed for the Malegam Recommendations? What about Capital Adequacy? Rs.15 Crores Net owned funds? Is this part of the acceptance or further clarity will come?
    5. Who will frame the rules of the game? MFIs, Banks? What documents should be collected to prove Income Generation activity and Income limit? Is a declaration enough? Will it be a true declaration?
    6. The Banks were lending to MFIs in good old days at 13% plus 1% processing fees, with the drastic increase in Interest rates the same would be atleast 15% for smaller players. This means that they can have a maximum spread of 11% and ensure that to make the business sustainable the operating costs needs to be drastically cut from about 13% on an average to less than 9%, which is very difficult for smaller companies. More so when the Ticket size per loan has been capped.
    6. By increasing the limit for urban household income to Rs.120000/- the MFIs would focus largely on the Urban poor while not touching the Rural ones since the cost of operations in Rural side is significantly higher than Urban.
    7. There is literally no mention about how funds flow would start and when eventually banks will fall in line.
    8. By mentioning that the regulation does not supersede the A.P bill, why will the Banks take a further risk on their balance sheet? Rs.10000 Crore already in Red???

    All in all, it is a very difficult situation to be in “Devil vs the Deep Sea” for MFIs. Probably very less chances of survival.

  2. Ramakrishnan Venkateswaran

    May 6, 2011 at 5:40 pm

    While the work of MFIN is laudable, it is to be noted that the guidelines are not entirely positive for the MFIs. Some points to be noted:-

    1. Rs.50,000 cap on household is replaced by Rs.60000/-. This means on a monthly basis it is Rs.866/- and if the household has 3 working persons it is just Rs.289/- per person per month. No great difference. If 50000/- was not on so is Rs.60000/- although this is only in the Rural side.
    2. Poverty in the Rural India is higher than urban India. You mean to say that a person having household income of Rs.61000/- is not poor and not suitable for MFI business and this shall not be classified as MFI loans?
    3. Who will ascertain this? Banks? There are still many compliance issues with respect to following KYC properly on many banks, how will they be able to address this issue? Do they have the intent, time and wherewithal?
    4. RBI has broadly agreed for the Malegam Recommendations? What about Capital Adequacy? Rs.15 Crores Net owned funds? Is this part of the acceptance or further clarity will come?
    5. Who will frame the rules of the game? MFIs, Banks? What documents should be collected to prove Income Generation activity and Income limit? Is a declaration enough? Will it be a true declaration?
    6. The Banks were lending to MFIs in good old days at 13% plus 1% processing fees, with the drastic increase in Interest rates the same would be atleast 15% for smaller players. This means that they can have a maximum spread of 11% and ensure that to make the business sustainable the operating costs needs to be drastically cut from about 13% on an average to less than 9%, which is very difficult for smaller companies. More so when the Ticket size per loan has been capped.
    6. By increasing the limit for urban household income to Rs.120000/- the MFIs would focus largely on the Urban poor while not touching the Rural ones since the cost of operations in Rural side is significantly higher than Urban.
    7. There is literally no mention about how funds flow would start and when eventually banks will fall in line.
    8. By mentioning that the regulation does not supersede the A.P bill, why will the Banks take a further risk on their balance sheet? Rs.10000 Crore already in Red???
    9. By all means one still does not know what will happen to those disbursements done from 1st April 2011 to 3rd May 2011, which were done at higher rates and may not have been fully compliant with the Malegam Recommendations or RBI guidelines. Anyways this may be less than 15% of the projected business of the MFIs (Hopefully)

    All in all, it is a very difficult situation to be in “Devil vs the Deep Sea” for MFIs. Probably very less chances of survival.

  3. abhay

    abhay

    May 9, 2011 at 10:58 am

    Dear Ramakrishan

    Agree with you… But I guess MFI’s need something to cheer themselves up so..

Leave a Reply

Your email address will not be published. Required fields are marked *

To Top