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NO LET-UP
Govt to review fund-raising by MFIs…….Surojit Gupta & Sidhartha Lending By Microfinance Institutions Also Comes Under The Scanner New Delhi: The government does not appear to be keen on unbridled growth of microfinance institutions (MFIs) and wants a review of the fund-raising plans of some of the players in the sector.
Though a final decision on regulating MFIs will be taken after a Reserve Bank of India-appointed committee looks into the entire gamut of issues related to the operation of microlenders,officials said the government has reservations about the way some of the players are giving out loans.
The idea was to support lending to those who did not have access to banking facilities and that too for productive use,not for meeting consumption spending.You cant be lending to high net worth individuals, an official said.In recent months,the functioning of MFIs,especially the interest rate charged and the recovery methods adopted by them,has come under regulatory and government scanner.The Andhra Pradesh government has gone ahead and promulgated an ordinance to regulate these entities while the Centre has postponed its plans to introduce a bill on regulating MFIs on account of the review that has been initiated by the RBI.
As a result of the controversy,several MFIs which had lined up plans to raise funds through initial public offers have had to defer the issues,at least for the time being.Sources in the government said there was a need to study how much fund-raising these entities should be allowed to undertake.They cant be growing at rates faster than finance companies and opening offices in every district, said a source.
So far,SKS Microfinance is the only MFI to have listed but several others such as Spandana Spoorty Financial and Bandhan,among others,are looking to raise funds to boost expansion and also comply with the capital requirements prescribed by the RBI.Ahead of their IPOs,some of the institutions had tapped private equity investorswho seek high levels of profitabilityto raise funds.
Officials said that based on the RBI-appointed committees recommendations,the government and the RBI will decide on the roadmap for regulation.At present,RBI regulates MFIs that have registered as banks while the others are dealt with by Nabard.Whatever be the decision,both sets of MFIs should have common regulation, an official said.
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