|
RBI panel moots tough norms for microfinance
Mumbai: A Reserve Bank of India (RBI) panel has recommended stringent regulations for microfinance institutions in order to get them do what they originally set out forprovide easy loans to the poor for income generation.The recommendations include restrictions on interest rates,loan size,and on end-use of loans.
The recommendations,if accepted,will dramatically change the way MFI business is conducted in the country.It will temper the growth of MFIs as it restricts loan size and end-use.It will also compress the margins of MFI lenders because of caps on lending rates and competition from banks.The report of the RBI board sub-committee,headed by Y H Malegam,to look into issues facing the microfinance sector was released by the central bank on Wednesday,a few hours after it threw a lifeline to the MFI sector by allowing banks to relax loan repayment schedules of MFIs.The announcement pushed up the share price of SKS Microfinance by 6%.The market may,however,react differently to the Malegam committee report which was released by the central bank after trading hours.
According to Vijay Mahajan,president of Microfinance Institutions Network and founder of one of the largest MFIs,Basix,the RBI notification on loan restructuring move will enable MFIs to continue with their lending activity outside Andhra Pradesh.At present,MFIs are collecting from other states and returning the money to banks.This move will allow them to plough back collections from other states into lending.
We have constantly been highlighting funding related challenges faced by the MFI industry.This move by RBI will provide temporary liquidity respite to the MFI industry, said Pawan Agrawal,director,Crisil Ratings.We have rated eight securitization transactions by MFI and all are performing strongly.This is because the collection remains strong for MFIs outside Andhra.Further,the stipulated credit enhancement,and structural features provide support to the ratings, he said.
The MFI model which was pioneered by Bangladeshi social activist Mohammed Yunus set an example that the poor are creditworthy and small loans can help them work their way out of poverty.But in India,the business morphed into a forprofit business with enormous growth potential.
MACRO VIEW
* Loans to single borrower be capped at Rs 25k and minimum loan tenure of 1 to 2 yrs
* Interest rate to be capped at 10-12 % over cost,overall rate capped at 24%
* Borrowers must be part of joint loan group
* Create separate category of MFI finance cos to be registered with RBI
* Recommendations should be implemented by Apr 1,11
|