Centre’s plans to increase options
The finance minister, Mr Pranab Mukherjee, on Friday announced in his Budget speech that the Mic-rofinance Institutions (Dev-elopment and Regulation) Bill will be introduced in the current session of Parliament.
We welcome Mr Mukh-erjee’s announcement as it would soon end all supply side issues of the MFI sector and restore credit options for rural low inco-me group from the formal sector. The MFI bill upon passage will override the AP MFI Act and pave the way for MFIs resuming len-ding and collections in AP.
While the announcement regarding the Bill is a heartening development, we in the MFI sector requ-est key policy makers to pursue the path of confluence as it is the real answer to financial inclusion.
The single most important lesson that ought to have been learnt out of the East Asian crisis has nothing to do with ‘cross currency exposure’. The lesson is about avoidance of concentration of credit delivery channels.
In India, we had an excellent system with Develo-pment Financial Institu-tions (DFI), banks and NBFC, one complementing the other. DFIs were able to commit huge ticket size and longer tenure. But some of them had a mere 30 branches. Banks have funding capability but some of them co-uld not fully meet the requ-irements of niche segments like microfinance. NBFCs have a structural disadvantage in terms of funding as they bear the cost of intermediation. But their credit delivery skills are unquestionable. We seem to have gone back on our wisdom.
DFIs are a relic. NBFCs could have become an historical foot note in 1998 and likewise Non-Banking Financial Companies-Microfinance Institutions (NBFC-MFIs) in 2010 post the ‘well engineered’ Andhra Pradesh microfinance crisis. But both have survived. In the end analysis, today all the credit risks are concentrated in the hands of banks.
Restricting ourselves to ‘financial inclusion’, the ideal solution is to achieve confluence between banks and NBFC-MFIs.
Mechanisms like rated pool assignment and securitisation channeled meaningful sums to the needy and deserving rural entrepreneurs.
NBFC and MFIs should be allowed to act as Business Correspondents for banks.
A conducive ‘mobile banking’ policy environment to ensure bank-NBFC-MFI collaboration is the need of the hour. These two initiatives will help MFIs reduce operating cost and facilitate a reduction in interest rates charged on micro loans to rural borrowers. If ‘regulatory arbitrage’ and ‘single form of presence’ are the concerns, then a bank’s holding in NBFC-MFIs can be capped at 10%. All stakeholders should pool their resources to imp-lement many more instruments of confluence to ach-ieve the amalgam of ‘Fun-ding Capability’ of banks and the ‘Credit Delivery Skills’ of NBFC-MFIs to further the interest of ‘financial inclusion’. Of course, the MFI sector has to walk the talk on client protection to fully gain the confidence of the regulators.
(The writer is the CFO of SKS Microfinance)
By arrangement with Financial Chronicle
Post new comment