In India, women’s development programmes was initiated by grassroots focussed NGOs. They started working with the people by teaching them about health, education and imparting skill training. Later on they introduced savings and thrift among them.
In the 1990’s , the Government also recognized their efforts and began encouraging the SHG- Bank linkage model. This model served only people living near bank branches. In India most of the villages are in remote areas. So there were many people who were not able to get credit facilities from banks. Even today the credit facilities from these banks do not reach large areas of the country.
At this juncture, grass root focussed rural NGO’s started their MFI activities with their small corpus or by utilizing the help of funding agencies to reach this population excluded from the SHG Bank linkage program. These MFI’s were successful and helped in fulfilling the unmet demand for credit but they now need more capital for further credit disbursement.
Emerging MFI’s with operations in rural areas have approached banks and financial Institutions for further lending , but they are unable to secure loans while big MFI’ s who have large infrastructure, resources and high ratings from rating agencies do so easily.
When an NGO decides to convert into a NBFC , it requires minimum two crore capital to do so. Many NGO’s do not have such large resources. So they have adopted the Mutual Benefit Trust route. In this, 50 % is contributed by MBT members and the remaining 50% by Local NGO’s. But now the Malegam committee report has disappointed these rural focussed MFI’s by putting the caluse that Rs 15 crore minimum net worth would be required to qualify as a NBFC-MFI.
The main objective of NBFC-MFI’s which will have more than Rs 15 Crore Net Worth will be profit maximization from the poor people. Many of the directors on the board of Big MFI’s are former government personnel who have taken voluntary retirement from government service, banks, financial institutions and insurance companies. These members are influencing the Banks, Financial Institutions and helping the MFI’s to get loans, equity.
To rectify the above mentioned problems and things we are submitting the following suggestions and recommendations to Malegam committee based on our study and experience:
- Reconsider the limit of 15 Crores net own funds to 25 Lakhs. This will be helpful for more community based Microfinance companies .
- The client should have only one loan from a MFI and not from two MFIs at the same time.
- Interest rate including processing fees should not be more than 24%
- Insurance must be made mandatory for all MFI clients.
- Encourage banks, financial institutions, SIDBI to give loans to rural focussed emerging MFI’s.
- For the Undeserved areas government should create a fund and give credit at lower interest.
- Rating will be done only by concerned Banks and not by any Rating Agencies.
- Interest Margin should be 10%.
- Reduce taxable amount.
- Annual income of the borrower should be reconsidered.
- Staff welfare measures like PF, Gratuity, Medical Facility, HRA etc must be introduced.
- District level monitoring committee is needed which can be headed by NABARD officials, Bankers, Local MFI Representatives and local NGO representatives.
- Close monitoring of MBTs especially with regard to dividends.