Raise minimum capital requirement for MFI’s : Experts

Written By Sushma Singh

Industry experts last week called for raising the minimum capital requirement of Rs 5 lakh for microfinance institutions (MFI’s) to avoid the influx of operators.

At the same time, the definition of microcredit needs to be worked out clearly when the Microfinance Institutions ( Development and Regulation ) Bill 2011 is placed in Parliament, they said at a roundtable discussion organized by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) in Bangalore.

The new law should spell out prudential norms for deposit and thrift collections besides a firm and transparent regulatory framework. Experts said the bill on MFI’s is a positive development as the industry has been clamoring for a technology-backed regulatory environment over the past many years.

India is one of the largest microfinance loan markets in the world with the sector having the potential to grow at an annual average of 50 percent, and attracting domestic and foreign investors hoping to practice profitable philanthropy. Once the new law is in place, said experts, the inflow of funds from banks will increase.

The recent RBI intervention by constituting Malegam Committee is a progressive step to regulate the sector and tackle issues like cost of raising funds, interest rates, loan ticket size, repayment options and high operating costs due to door-to-door step facilities.

Raise minimum capital requirement for MFI’s : Experts

Industry leaders said the introduction of multi-purpose national identity cards is expected to revolutionize the micro-finance sector by bringing down transaction costs. Bigger financial institutions with huge funds do not find commercially feasible to lend to the poor as they cannot offer anything as collateral security.

Though micro-finance in the organized sector is still at nascent stages, it can metamorphose into a bigger activity if given the right fillip. The present quantum of micro-finance can be enhanced by sustained efforts on the part of financial institutions, self-help groups and interested NGOs.

The issues of alternate funding, reduction in operating costs, restricting indebtedness and income criteria need to be fine-tuned and supported for healthy and vibrant growth of micro-finance institutions, said the experts.

Among those present in the discussion were Mr. P.K. Jain, chairman and managing director of The Malt & Company, Mr. Samit Ghosh, managing director of Ujjivan Financial Services, Mr. Suresh Krishna, managing director of Grameen Financial Services, and Mr. Jyotirmoy Jain, advisor and head of ASSOCHAM’s banking and finance division. Some experts said the bill should have provisions to keep away objections from states.

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