Microfinance Private Equity

RBI concerned about Private Equity funds investing in Microfinance Companies

RBI officials told CNBC-TV18 in an interview that was broadcast yesterday that they are yet to take a view on how to treat private equity investments in Microfinance Institions. For decades microfinance in India was always seen as a not for profit function with a social purpose  but this has changed drastically in the last few years with many foreign based private equity funds pouring money into this sector.

The Reserve Bank of India intends to tell the lending public sector and private banks to exercise more corporate governance and to check whether microfinance institutions to which they are lending are lending in a humane manner.

Reserve Bank of India Microfinance

RBI-Reserve Bank of India

The Reserve Bank of India had only last month warned the heads of top microfinance institutions that the sector could lose it’s priority sector lending status if corporate governance standards did not improve among MFI’s.

Since then to improve the functioning of the entire sector microfinance institutions have taken the initiative to start a credit bureau for micro loans .This credit bureau would contain information about micro loan borrowers  and will be accessible to micro-finance institutions and could help to rein in multiple lending.

The microfinance credit bureau is expected to become operational in a few months time.

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