MICROFINANCE BILL
The Microfinance
Sector (Development and Regulation) Bill-2007 was introduced in Lok Sabha on
March 20, 2007 as a first step in trying to regulate the sector. The preamble
of the Microfinance Sector Development and Regulation Bill- 2007 sets the objective,
"to provide for promotion, development and orderly growth of the micro
financial sector in rural and urban areas to facilitate universal access to
integrated financial services by the population not having banking facility and
thereby securing prosperity of such areas and regulation of microfinance
organisations (MFO) not being regulated by any law for the time being in force
and for matters connected therewith or incidental thereto".1 The bill has
at least four positive features. (i) the bill permits MFOs to accept savings
from members subject to certain conditions. An 1 Source: MF Development and
Regulation, By B. Yerram Raju, Hyderabad. Yojna, January 2008, P. MFO which has
been in existence for at least three years having net owned funds of at least
Rs. 0.5 million and satisfactory management can obtain registration from NABARD
and therefore offer saving services. The non-availability of savings has been a
major gap in the services provided by the sector. (ii) The Bill provides for
mandatory registration and periodic report submission by all MFOs seeking to
accept deposits. (iii) It provides for inspection of MFOs by the regulatory
authorities in case of complaints of harmful practices (iv) The bill does not
introduce interest rate caps which could have been damaging for the sector. But
several provisions in the bill invite serious concern. It speaks of the sector
and affirms to regulate only the MFOs. It excludes from its preview HUFs,
NBFCs, Section 25 companies, scheduled banks including RRBs presumably because
they are already being regulated by the RBI. The Bill recognizes only members
of the group formed for microfinance purpose as clients. The bill also includes
among others the small farmers of two hectares and less and women in general in
the eligibility category. The exclusion of MFIs from the preview of the bill
gives the advantage of having access to better off client bases with larger
profit margins. Thus there is a danger of the institutions subject of
regulatory vigor of the bill becoming unviable in the long run.
This bill fails to
perform the balancing act of defining needs of its target customer base,
perhaps invite regulatory arbitrage by financial players seeking to ‘pass’ as
microfinance providers. Section 2 (e) (i) is silent about the societies that
are registered / incorporated under various state laws that have been enacted
by several states for registration of societies in their respective states
(e.g. Rajasthan, 1958, Karnataka 1960, West Bengal 1961, Madhya Pradesh 1973,
Tamil Nadu 1975, Meghalaya 1983, Andhra Pradesh 2001). It means that societies
in these states are excluded from the preview of this bill, since the societies
Regulation Act 1860 is not applicable in these states. It was realised on the
basis of the above reasons that the Bill-2007 in the current form does not
satisfy either development or regulatory aspects and hence in order to address
the key issues, necessary steps were taken to modify the bill appropriately and
adequately in 2011. Consequently a new Microfinance Institutions Development
and Regulations Bill was enacted and was released on May 22, 2012.
MICRO FINANCE INSTITUTIONS (DEVELOPMENT AND REGULATIONS) BILL
2011
The Micro Finance
Institutions (Development and Regulations) Bill 2012 is an updated version of
an earlier Bill drafted in 2007. The bill had been released on May 22, 2012
after many changes to consider the most recent RBI regulation. The Bill
addresses all legal forms of microfinance institutions, providing a
comprehensive legislation for the sector. New regulation includes:-
Designation of RBI
as the sole regulator for all microfinance institutions.
Micro credit
facilities not exceeding Rs. 5 Lakh in aggregate or with RBI specification Rs.
10 Lakh to each individual
Central Govt. will
create a micro finance Development Council with officers from different
ministries and departments for the development of MFIs.
Central Govt. will
also form state Micro Finance Councils to coordinate the activities of District
Micro Finance Committees. Bill requires that all MFI should obtain a
certificate of registry on from RBI after having net owned funds of Rs. 5 Lakh.
Each MFI will create
a reserve fund by appropriating the fixed percentage (specified by RBI) from
net profit.
MFI will provide an annual
balance sheet and profit and loss account for audit to the RBI. Return of MFI
will give details about any change in corporate structure, such as shut down,
amalgamation, takeover etc.
RBI can issue the
directions to MFI regarding extent of assets deployed in Micro finance
activities, ceilings on loans, limit of annual percentage, rate charged, limit
on the margin etc.
RBI will create the
Micro-Finance Development Fund to provide loans, grants andother micro credit
facilities to any MFI.
RBI is responsible for redressal of grievances for
beneficiaries of micro finance services.
RBI can impose a penalty up to Rs. 5 Lakh for any
contravention of the Bill’s provisions and No civil court can challenge.
Bill gives the central govt. authority to delegate certain RBI
powers to the NABARD or any other central Govt. agency.
The central Govt. has the power to exempt certain MFIs from
the provisions of the bill.
The designation of RBI as the sole regulator would be a positive
step forward for the Micro Finance sector.
NABARD AS REGULATOR OF
MICROFINANCE SERVICES
Despite the policy
efforts of Government of India and RBI, gap remains in the availability of
financial services in rural areas. The dependence of rural poor on money
lenders continues, especially for meeting emergent requirements. Therefore,
Government of India established NABARD in 1982 in accordance with the
provisions of the NABARD Act, 1981 as a development bank for providing and
regulating credit and other facilities for the promotion and development of
agriculture, small scale industries, cottage and village industries,
handicrafts and other allied economic activities in rural socio-economic
development and secure prosperity of rural areas and for matters connected
thereto.
For over three decades,
NABARD as a national level apex institution has been playing a pro-active role
in addressing important issues of the rural economy. It has been providing
refinance to cooperative banks, RRBs, scheduled Primary Urban Cooperative Banks
(PUCBs) and Agricultural Development Finance Companies (ADFCs) for
supplementing them resources for credit flow to the agriculture and Rural
Sector. NABARD has also provided loans to State Governments for their
infrastructure projects under Rural Infrastructure Development Fund (RIDF).
However, in the current global economic scenario, time is ripe for NABARD to
review its strategies and policies with regard to micro financial sector in the
light of the need and policy of government over the last few years.
Consequently in 2007, the micro-financial sector (development and regulation)
bill enacted by the Government of India, designated National Bank for
Agriculture and Rural Development (NABARD) as the regulator for the
micro-finance sector.
REGULATORY FUNCTIONS
1. The Banking
Regulation Act, 1949 empowers NABARD to undertake inspection of the RRBs and
Co-operatives.
2. Any RRB or
Co-operative banks taking permission from RBI for opening new branches will
have to obtain recommendation of NABARD.
3. RRBs and Co
–operatives are required to file returns and documents with the NABARD.
It has been entrusted
with the statutory responsibility of conducting inspections of the State
Cooperatives Banks, District Central Cooperative Banks and Regional Rural Banks
under the provisions of The Banking Regulation Act , 1949. In addition, it
conducts periodic inspections of state level co-operative institutions on the
voluntary basis.
NABARD’S POLICIES FOR MICRO FINANCE ACTIVITIES
AND REGULATION
The term “micro-finance” has been given a working definition by
the Task Force on Supportive Policy and Regulatory Framework for Micro-Finance
set up by NABARD in November 1998 as: “provision of thrift, credit and other
financial services and products of very small amounts to the poor in rural, semi-urban
and urban areas for enabling them to raise their income levels and improve
living standards”. It is, however, understood that the MFIs provide other
non-credit services such as capacity building, training, marketing of the
products of the SHGs, microinsurance, etc. In this background, the following
considerations are relevant:
First, micro-finance
would be seen to be a broader concept than micro-credit. Second, there is a
recognition in the Annual Policy Statement of the RBI, 2005- 06, to review the
existing practices to align them with the objective of financial inclusion in
regard to banking services. This underlines the Importance of the micro-finance
movement in addressing the issue of financial exclusion.
Third, the
increasing size and growth of MFIs seem to warrant a clearer policy framework
to cover operations in financial services in addition to credit, in respect of
both bank- and NABARD-led micro-finance through SHGs and micro-finance
institutions.
Fourth, the delivery
of non-credit financial services, such as insurance and mutual funds by micro
finance institutions seems to be possible but as a pre-condition, there is a
need for a clear framework for the approach of different regulators to these
non-bank financial services by MFIs. Fifth, the organizational forms of
micro-finance institutions appear varied, though the activities may in some
cases include non-financial services. This makes them subject to differing
legal frameworks as per the organizational form. Sixth, different State
Governments take varying approaches to the microfinance institutions –including
subsidising interest rates. The nature and spread of microfinance movement also
differ significantly across states. Seventh, as per information available, a
significant part of the current microfinance activity is related to credit and
the absence of a conscious policy thrust in regard to non-credit related
financial services. Eighth, developments in technology seem to provide a
window of opportunity to reduce the transaction costs and thus enable
microfinance to be commercially viable and profitable activity.
Finally, the Finance Minister in his Budget Speech for 2005-06
made a reference to the possibility of a suitable legislation in this regard.
Broadly, the approach
of RBI has been to emphasise the informality of microfinance and focus on the
developmental aspects. The regulatory dispensation put in place by the RBI
seeks to enable enhanced credit flow from banks through MFIs 85 and could be
further refined by RBI, as necessary. On the suggestion for bringing the
micro-finance entities under a system of regulation through a separate
legislation, the RBI felt that microfinance movement across the country
involving common people has benefited immensely by its informality and
flexibility. Hence, their organization, structure and methods of working should
be simple and any regulation will be inconsistent with the core-spirit of the
movement. It was also felt that ideally, the NABARD or the banks should devise
appropriate safeguards locally in their relationship with the MFIs, taking into
account different organizational forms of such entities. In any case, if any
statute for regulation of MFIs is contemplated, It may be at the State-level
with no involvement of the RBI as a banking regulator or for extending
deposit-insurance.
The National Bank for
Agriculture and Rural Development (NABARD) set up a task force on Supportive
Policy and Regulatory Framework for Microfinance in the late1998. This task
force found microfinance an emerging activity to be nurtured. It was ahead of
its times in calling for registration, and regulation through a selfregulatory
organization (SRO). Pending an SRO, the task force recommended that RBI should
put an interim regulatory framework. At the same time, Sa-Dhan, the association
representing diverse non-governmental and private sector players in
microfinance, was established. Sa-Dhan was expected to evolve as the voice of
the industry and a SRO. This task force had a profound and simultaneous impact
on policy making.
NABARD has adopted
CAMELSC approach (Capital, Asset Quality, Management, Earnings, Liquidity,
Systems and Compliance) with regard to inspection process and supervisory
rating of RRBs and Cooperative Banks. NABARD, apart from making suitable
recommendations to RBI for licensing and regulatory action and providing inputs
from time to time, has evolved and implemented suitable supervisory best
practices pertaining to RRBs and Cooperative Banks.
RURAL CREDIT AND
MICRO-FINANCE MONITORING COMMITTEE FRAMED BY NABARD
NABARD has designed a
very thorough grading system for NGO. The agreement between the NGOs and NABARD
stipulates that the NGO should set up a project monitoring and implementation
committee, to co-ordinate their SHG promotion activity with the banks, and also
to enable NABARD to monitor progress. These committees do not always meet
regularly, and it is very difficult for one NABARD District Development Manager
(DDM), who may cover an area with a population of two million people, to be
sure that every SHG which is promoted conforms to its social criteria. In this
case, the ‘social’ quality of the groups has to be very carefully monitored.
ROLE OF NABARD
NABARD established and
accredited with all matters concerning policy, planning and operations in the
field of credit for agriculture and other economic activities in rural India
with a vision to facilitate sustained access to financial services for the
reached poor in rural areas through various microfinance innovation in a cost effective
and sustained manner. NABARD has been working as a catalyst in promoting and
linking more and more SHGs to the banking system. The pioneering efforts at
this direction were made by NABARD. In 1991-92 a pilot project for linking
about 500 SHG with banks was launched by NABARD in consultation with the RBI.
It is considered as a landmark development in banking for the poor. On the
recommendation of the NABARD, RBI advised that the banks financing to SHGs
would be covered as a part of their lending to weaker sections. Banks were
advised to consider lending to SHGs as a part of their main-stream credit
operations, to identity branches having potential for linkage with SHGs and
provide necessary support services to such branches. Further, it was decided that
NABARD would continue to provide refinance to banks under the linkage projects
at the rates stipulated from time to time. NABARD has taken an initiative to
increase an access to credit for the poor, particularly SC/ST, although more
subsidisation as well extension to all ages in its various schemes has been
covered. NABARD has been providing refinance to Cooperative Banks Commercial
Banks, RRBs, Scheduled Primary Urban Cooperative Banks (PUCBs) and Agricultural
Development Finance Companies (ADFCs) for supplementing their resources for
credit flow to the agriculture and rural sector. NABARD has also provided loans
to the State Governments for their infrastructure projects under rural
infrastructure Development Fund (RIDF). The RIDF projects have accelerated the
rate of development in the rural areas with ‘Downstream effects’ attracting
further private investments and leading to spurt in economic activities. SHG,
Bank linkage programme was started on the basis of recommendations of S.K.
Kalia Committee. The pilot project was launched by NABARD after extensive
consultations with Reserve Bank, commercial banks and non Governmental
Organisations (NGOs) with the following objectives:
(i) To evolve
supplementary credit strategies for meeting the credit needs of the poor by
combining the flexibility, sensitivity and responsiveness of the informal
credit system with the strength of technical and administrative capabilities
and financial resources of the formal credit institutions;
(ii) To build mutual
trust and confidence between the bankers and the rural poor; and
(iii) To encourage
banking activity, both on the thrift as well as on credit sides, in a segment
of the population that the formal financial institutions usually find difficult
to cover.
The Pilot project was
designed as a partnership model between three agencies viz. the SHGs, Banks and
Non Governmental organizations. It also provided technical support and guidance
to the agencies participating in the programme for selecting SHGs who had
followed the following Criteria:
a) The group should be in existence for at least 6 months.
b) The group should have actively promoted the savings habit.
c) Groups could be formal (registered) or informal
(unregistered)
d) Membership of the group could be between 10 to 25 persons.
The pilot project
envisaged linking of only 500 SHGs to the banks. By the end of March 1993, 225
SHGs were actually linked. The figure reached to 625 in 1994 and 836 by the end
of 2001 respectively. The pilot project was a success. NABARD refinances the
financial institutions engaged in micro-finance, to the extent of actual
disbursement. NABARD, SIDBI are bulk financiers, who cleverly leverage
resources obtained from a variety of resources (donors, government, market) for
rural finance including microfinance. The data shows that NABARD has played a
key role not only in promoting SHGs but also in standing behind the SHG Bank
Linkage Programme. Under the SHG Bank linkage programme of NABARD, about 560
financial institutions, cooperative, RRBs and Commercial Banks have
participated across the country. Under SBL programme the financial institutions
have financed about 10,00,000 SHGs which are promoted either directly by them
or by the NGOs. NABARD provides refinance to these financial institutions for on
lending to SHGs.
RECOMMENDATIONS OF
VARIOUS COMMITTEES AND WORKGROUPS
A survey of rural
credit in 1950-51 showed that cooperatives could meet barely 3.3 percent of the
total credit requirement of farmers while money lenders accounted for 93
percent of credit needs of the farmers. The All India Rural Credit Survey
Committee (1954) stated - "Cooperation has failed, but cooperation must
succeed". On the recommendations of this committee, the RBI took a series
of measures to strengthen cooperative institutions. The All India Rural Survey
Committee (1969), recommended the adoption of "Multiagency approach"
to finance the rural sector. The government accepted that rural credit could
not be met by cooperative societies alone and the commercial banks should play
an important role in the rural sector. This was a reason for the takeover of 14
leading banks in 1969. This was followed by setting up of Regional Rural Banks
(RRBs) in 1995. The working group under the Chairmanship of C.E. Kamata (1976)
identified the problem of existence of a number of agencies relating credit in
a common area of operations and disbursing credit in an uncoordinated manner
resulted in multiple financing, over-financing, under-financing, financial
indiscipline and diversion of scarce resources to unproductive purposes.
RECOMMENDATIONS OF
KHAN WORKING GROUP (2004)
‘Khan working Group’
was constituted by RBI (2004), to examine issues relating to Rural Credit and
Microfinance. The report pinpointed that there are several reasons for the
rural poor remaining excluded from banking system. These are-high transaction
cost at client level, cumbersome documentation and procedures at the formal
sector, lack of awareness, small size of loans, availability of doorstep
services from informal sector and indifference of the formal banking system.
The working group broadly recommended that.
i) Business
Correspondent Model to be implemented for expansion of banking outreach.
ii) A separate and
exclusive regulatory supervisory framework for MFIs may not be required for the
present, as the major players undertaking microcredit are well regulated.
iii) Non-deposit taking MFIs with help of SIDBI and NABARD may
attempt for self regulation.
iv) Setting up of national microfinance information bureau.
v) Direct finance facilities by MFIs from NABARD.
vi) Rating of MFIs.
vii) Capacity building in MFIs.
viii) Extending outreach through ICT.
The group said it may not be appropriate to fix any ceiling on
interest rates. However, it cautioned the cost of credit should not be
usurious. The group suggested that comprehensive regulatory framework may be
taken up for a review at a later stage. A certain recommendations of the Khan
working group to expand the outreach of banking in rural sector have been
implemented.
RECOMMENDATIONS OF VEDA COMMISSION (2004)
Veda Commission was appointed by RBI in August 2003 for
identifying the issues relating to
(i) Structure and
sustainability (ii) funding (iii) Regulations
(iv) Capacity building in the areas of micro-finance.
The Regulatory issues have been classified under four tiers.
Those pertaining to SHGs.
Those pertaining to NGOs.
Those pertaining to micro credit institutions MCIs.
Those pertaining to microfinance institutions MFIs.
Recommendations for SHGs1
i) SHGs may not lend outside the groups.
ii) SHGs may decide on some cap on borrowings per member.
iii) Group to decide on apportioning of income earned during a
year.
iv) Pass-books may be issued to each SHG member.
v) A rating matrix by lender to assess SHGs while making credit
decisions to be made mandatory.
vi) The rating exercise to be done by the lender (NGO/MFI/Bank)
on a yearly basis to ensure no stoppage in the ratings.
Recommendations for Micro-Finance Institutions
i) Minimum entry - level capital requirement for micro-finance
NBFCs which are involved exclusively in financing SHGs be reduced to Rs. 25
lakhs from 1 Source : The Journal of Indian Institute of Banking & Finance,
July-Sept. 2007, P. 31. 92 Rs. 200 lakhs at present. However, such NBFCs may
not be allowed to accept deposit until their capital is raised to Rs. 200
lakhs.
ii) Capital adequacy norms should be more stringent compared to
formal financial institutions as all the loans provided by MFIs are collateral
free loans. A minimum capital adequacy ratio (CAR) of 10% of the risk-weighted
assets is suggested.
iii) MFIs/NBFCs to
maintain separate books of accounts for microfinance activity. Financial
statement should be in a standard proforma with adequate transparency and
disclosures.
iv) All incomes and
interest on loans should be recognized on accrual basis. All accounts, where
interest / installment are overdue for more than 45 days should be treated as
NPAs.
v) The organisation
should provide adequate provisioning to take care of loan losses to begin with,
it should be 2% on the standard assets. Exemption to be provided under IT Act
for reserves created for the loan loss. These guidelines to be more stringent
when compared to formal institutions as all the loans provided by NBFCs are
collateral free loans.
RECOMMENDATIONS OF WORK GROUP OF RBI (2002)
RBI constituted four
informal groups to further stimulate the process of constructive dialogue
amongst the major players in the area of micro finance. Therecommendations of
these groups are as follows:-
i) Group recommended
creation of an autonomous and professionally managed National Micro Finance
Equity fund with an initial subscription of RS. 200 Crore. This fund will be
used for weaker section lending under the priority 93 sector. The corpus of
fund is to be raised to Rs. 500 Crore over two to three years.
ii) A separate
category of non-banking finance companies (NBFCs) for attending to Micro
finance business with entry capital of Rs. 25 Lakh is to be created. MFI would
mobilize deposits Rs. 5000 per depositor covered by the guarantee of Deposit
insurance credit corporation
iii) Group recommended
that RBI should establish micro finance funds for capacity building. RBI should
constitute a permanent working group on micro finance to monitor and review the
progress on allocation of resources.
iv) NGOs / Federation
of SHGs involved in mobilization of savings and lending activity should
transform themselves in to mutually aided cooperative societies/NBFCs within
two years. If NGOs intend to transform themselves in to section 25 companies,
they would carry lending activity only. The size of the loan to individual
members of SHGs should not exceed Rs. 50,000. The interest charged by NGO to be
made public and method of fixation should be transparent, it could cover the capacity
building and management costs as well.
RECOMMENDATIONS OF VYAS COMMITTEE (2004)
RBI setup an advisory
committee on provision of credit to agriculture and allied activities under the
chairmanship of professor V.S.Vyas in Dec. 2003. Committee submitted its report
to RBI on 30th June 2004 with following recommendations related to micro
finance.
i) Where SHG-Bank
linkage programme has not shown satisfactory progress, Banks may evolve a three
year action plan at each controlling unit level for scaling up the programme.
Special attention to micro finance will go a long way in expanding this segment
of business. All banks may set up adequately staffed micro finance cells at
central offices and in each state.
ii) Banks need to make
efforts to make access to financial services smooth and client friendly.
iii) Banks may explore
possibilities of offering SHGs Credit cards similar to KCC and Swarojgar credit
cards.
iv) Banks may
encourage using local book writers to maintain the books of accounts in
association with concerned agencies promoting these SHGs on a cost sharing
basis, with some support from Banks.
v) All development
agencies need to converge on SHGs to provide them necessary skills, market
linkages, technological support etc. NABARD should continue to take the lead
role in this regard.
vi) Cooperative banks
may take up SHG banking on a significant scale with support from NABARD and
state Govts.
vii) Non-Financial
intermediary type federation need to be encouraged to provide umbrella support
to member SHGs. Experimentation of the Financial intermediary type federations
is needed to determine cost of promotion of such federations, capacity building
of federations, their organizational and financial sustainability and above all
the quality of value addition being achieved by these federations.
viii) NGO-MFI require
regulatory and supervisory framework to be strengthened. MFIs should be
encouraged in unbanked and rural areas.
ix) NGO-MFI can
facilitate client’s access to saving services of regulated banks. Without RBI’s
permission; MFI’s are not to accept Public deposits.
x) As MFIs charge high
rate of interest from borrowers, lenders to MFIs ensure that these institutions
determine the rates of interest they charge to their clients on a cost plus
reasonable margin basis.
RANGARAJAN COMMITTEE (2008)
Committee on Financial Inclusion which was constituted under the
chairmanship of Dr. C. Rangarajan had given the major recommendations, which
are summarized as follows:-
i) Farm household not
accessing credit from formal sources is large; it varies across regions, social
groups and asset holdings.
ii) In order to
improve the level of inclusion, demand side efforts should be made like human
and physical resource endowments, enhancing productivity, mitigating risk, strengthening
market linkages, improve the delivery system.
iii) Policy changes
are required for achieving desired level of financial inclusion.
iv) The committee
proposed the constitution of two funds with NABARD- the financial inclusion
promotion & development fund and the financial inclusion Technology fund
with an initial corpus of Rs. 500 Crore each to be contributed in equal
proportion by GOI/ RBI/NABARD.
v) For extending
financial inclusion adoption of appropriate technology or Business Facilitator,
Business Correspondent (BF/BC) models would enable the branches to go to
customers. To extend the coverage of BF/BC some recommendations for relaxation
of norms has been made by committee.
vi) Members of well
established SHGs want to expand and diversify their activities for economies of
scale. So many groups are organizing themselves into federations and other
higher level structures. These federations at village and taluk level should be
encouraged. But committee felt that they cannot be entrusted with the financial
intermediation function, committee recommended amendment to NABARD Act to
enable it to provide micro finance services to the urban poor.
vii) The clients like share croppers / oral lessees / tenant
farmers, who have no collaterals to fit in to traditional financing approaches
of the banking system, joint liability groups (JLGs), an up gradation of SHG
model could be an effective way. Adoption of JLG concept for purveying credit
to mid segment clients can reduce their dependence on informal sources of
credit.
viii) Committee
recommended a separate category of micro finance-Non banking finance companies
(MF-NBFCs) without any reposition on start-up capital and subject to the
regulatory prescription applicable for NBFCs. Such MF-NBFC may also be recognized
as Business correspondents of banks for providing only savings and remittance
services and also act as micro insurance agents.
ix) Committee recommended the linking of micro credit with
micro- insurance, which is the key element in the financial services package
for people at the Bottom of the Pyramid.
MALEGAM COMMITTEE REPORT FOR MFI REGULATION (2011)
RBI constituted
Sub-committee under the chairmanship of Sh.Y.H. Malegam to address the
important issues concerning the micro finance sector, which released the report
of recommendations on 19th January 2011. This committee was to review the scope
and objectives of regulations governing MFIs with regard to interest rates,
lending and recovery practices, need for grievance redressal machinery, applicability
of existing money lending legislations and other issues concerning the sector.
This committee recommended the creation of NBFC-MFIs providing
short term and unsecured loans to the Low income borrowers for income
generating activities. Some of the recommendations for NBFC-MFIs are:
i) NBFC-MFI to hold not less than 90% of its total assets as
qualifying assets.
These NBFC-MFIs cannot provide loans to microfinance sector
exceeding 10% of its total assets.
ii) Maximum limit to a single borrower i.e. Rs. 25,000.
iii) 75% of Loans given by the MFI should be for income
generating purposes.
iv) All the services of MFI should be according to the
guidelines.
v) All NBFC-MFIs are recommended to have a minimum net worth of
Rs. 15 Crores.
Some other recommendations of Malegam Committee are as follows:
i) A borrower can be a member of only one self help group (SHG)
or a joint liability Group (JLG). Single borrower cannot get loan from not more
than two MFIs.
ii) Period of moratorium between disbursement of Loan and the
commencement of recovery should be minimum.
iii) To avoid multiple lending and over borrowing, a credit
information Bureau should be formed.
iv) Proper code of conduct for field staff for prevention of
coercive methods of recovery should be followed.
v) RBI should frame a draft customer protection code, specified
code of corporate Governance, grievance redressal procedure for all MFIs.
vi) Tenure of loan will be 1 year for the loan amounting to Rs.
15,000 and for other loans not less than 2 years without prepayment penalty.
vii) MFI cannot charge
more than 1% of the gross loan amount as insurance premium, interest charges
and loan processing fees.
viii) MFI should make
aware the borrowers about effective interest rates to enable comparability.
ix) Only aggregate
provision for loan losses should be maintained and disclosures in regard to
outstanding loan pools should be made by MFIs.
x) Banks lending to
MFIs would continue to be entitled to priority sector status. A cap of 24% is
provided for interest on individual loans, an average margin cap of 10% for
MFIs having loan portfolio of Rs. 100 Crores and above and cap of 12% for
smaller MFIs.
xi) Sub Committee also
recommended that entities governed by the Micro Finance (Development and
Regulation) Bill 2010 should not be allowed to do business of providing thrift
Services.
A key gap in these
recommendations is that they apply only to NBFCs and focus on the prudential
aspects of a MFI business. Emphasis of these recommendations is more on bank
lending under PSL targets and less on framework for the MFI sector as a whole.
Rather they focus on the business operations of the MFI, instead of broad
principles of regulation. Inclusive growth always received special emphasis in
the Indian policy making. Government of India and the Reserve Bank of India has
taken several initiatives to expand access to financial systems to the poor.
Some of the salient measures are nationalisation of banks, prescription of
priority sector lending, differential interest rate schemes for the weaker
sections, development of credit institutions such as Regional Rural Banks, etc.
Despite the policy efforts, gap remains in the availability of financial
services in rural areas.
INITIATIVES TAKEN
In case of India, the
banking sector witnessed large scale of branch expansion after the
nationalisation of banks in 1969, which facilitated a shift in focus of banking
from class banking to mass banking. It was, however, realised that, not
withstanding the wide spread of formal financial institutions, these
institutions were not able to cater completely to the small and frequent credit
needs of most of the poor. This led to a search for alternative policies and
reforms for reaching out to the poor to satisfy their credit needs. Recognising
the potential of micro finance to positively influence the development of the
poor, GOI, RBI, NABARD and SIDBI have taken several initiatives over the years
to give a further fillip to the micro finance movement in India. This segment
of the present chapter traces the supportive policies and current status in
this regard. India has recognized the unmet financial needs of poor people and
has initiated and supported many progressive financial inclusion efforts in
early 19th century. Priority sector lending is a government initiative
which requires banks to allocate a percentage of their portfolios to investment
in specified priority sectors at a reduced interest rate. Both the SHG approach
and MFIs have been aided by the Reserve Bank of India’s priority sector lending
policy, which requires domestic banks to lend significant portions of their
loan portfolio to underserved sectors and small producers. Lending to SHGs and
MFIs meets part of this requirement. The Reserve Bank of India (RBI) encouraged
banks to participate in microfinance by reckoning lending to the sector as part
of their priority sector lending, which needs to account for 40% and 32% of net
bank credit in the case of domestic and foreign banks respectively. Currently
only microfinance institutions registered as NBFC-MFIs are designated as a
priority sector. The number of priority sectors has recently been reduced,
which suggests that banks will rely more heavily on lending to microfinance
institutions to meet the priority sector requirements. In order to register as
a NBFC- MFI, an institution must meet requirements specified by RBI. In 1994,
RBI constituted working group on NGOs and SHGs and banks were advised inter
alia, that financing of SHGs should be included by them as part of their
lending to weaker sections. The Govt. of India also initiated to set up a
Rashtriya Mahila Kosh (RMK) with initial fund of Rs. 310 Million to act as a
provision of wholesale funds for the sector and to develop the sector through
capacity building and advocacy.
TECHNOLOGY APPLICATIONS
BY BANKS - SMART CARDS AND BIO- METRIC CARDS: Financial inclusion could be a
cost-effective business proposition
if appropriate
low-cost technology is adopted by commercial banks and rural financial
institutions. Such technology should reduce transaction costs of providing
banking services in the rural, unbanked and backward areas of the country. For
instance, technology will allow branchless banking and establishment of new
partnerships between financial service providers and a range of other service
providers, that was not feasible before, to provide services to clients in
remote areas and low-population density areas. Banks in India have initiated
pilot projects utilizing smart cards/mobile technology to increase their
outreach. Biometric methods for uniquely identifying customers are also being
increasingly adopted. Banks are also increasingly adopting technological
solutions for delivery of credit at affordable price and to a wider section of
the population. Technology-enabled projects, viz. the Unique Identification
Number (UID) project, CBS in RRBs and cooperative credit institutions, mobile
banking, hand-held devices, smart cards, biometric cards, tech-savvy BCs
(trained out of FITF), routing of payment under government social schemes through
banks and microfinance have the ability to catapult financial inclusion into
mainstream banking business. State Bank of India initiated a project called the
SBI Tiny Card Accounts [SBITCAs] recently in Aizwal. The SBITCAs are based
through new generation mobile phones based on near-field communication [NFC]
technology, enhanced with fingerprint recognition software and attached to
receipt printer. The card allows activation of transfer of funds for the
purpose of micro-savings, cash deposits and withdrawal, micro-credit, money
transfer [account-to-account within the system], micro-insurance, cashless
payments to merchants, SHG Savings-cum-credit accounts and attendance systems,
disbursements of Government benefits like the national rural employment guarantee
scheme, for equated monthly installments, utility payments, coupons, vouchers,
tickets, automatic fare collection systems, etc.
INITIATIVES TAKEN BY NABARD
SHG-Bank Linkage
Programme: One of the early
attempts at financial inclusion during the period of economic reforms in India
has been the launching of the Pilot Project on SHG-Bank Linkage in February
1992 by NABARD. It proved to be a revolutionary programme for alleviating
poverty through capacity building and empowerment of the rural poor, especially
women. Microcredit extended either directly or through any intermediary is
reckoned as part of bank’s priority sector lending. The SHG-Bank Linkage
Programme provides opportunities for the rural poor to participate in the
development process. It is cost effective, and ensures that more and more
people are brought under sustainable developmental activities, within a short
span of time. As on end-March 2004, about 1.1 million self-help groups (SHGs)
were linked to banks covering 16 million poor families. Total flow of credit
was Rs.3,900 crore with an average loan of Rs.36,000 per SHG and Rs.2,400 per
family. Banks are encouraged to further strengthen this process. As per
announcement in the Union Budget for 2004-05, credit linking of 5.85 lakh SHGs
need to be completed by March 2007. Specific steps are being taken to identify
district level bottlenecks in regions where linkage has been relatively low.
The SHG-Bank Linkage Programme, over the past twenty two years has become the
common vehicle in the development process, converging important development
programmes. The small beginning of linking only 500 SHGs to banks in 1992, had
grown to over 0.5 million SHGs by March 2002 and further to 8 million SHGs by
March 2012. From almost 100% of the SHGs linked to Banks at the pilot stage
from southern states, the share of southern States in the total number of SHGs
linked shrank to 46% by March 2012, while the share of eastern States
(especially, West Bengal, Odissa, Bihar) shot up to over 20%. The third decade
of the programme promises to be one of maturing the linkage programme with
livelihoods support, lot more innovations in the product range offered through
SHGs and path breaking reforms in leveraging technology to improve efficiency,
while extending its outreach to more geographical regions, especially the most
resource poor regions of the country. It is widely believed that the SHGs of
the poor will be the vehicles leading the march of India’s emergence as a super
economic power in the next decade. A number of countries, especially the
developing countries and international agencies are turning to India to learn
from its experiments with micro Finance and to explore possibilities of
replication of the model in other parts of the globe. Rating of Micro Finance
Institutions (MFIs): In order to identify MFIs, classify and rate such
institutions and empower them to intermediate between the lending banks and the
clients, NABARD has decided to extend financial assistance to Commercial Banks
and Regional Rural Banks by way of grant to CBs, RRBs and Co- operative Banks
to avail of the services of accredited rating agencies for rating of MFIs. The
banks can avail the services of credit rating agencies, M-CRIL, ICRA, CARE and
Planet Finance in addition to CRISIL for rating of MFIs. The financial
assistance by way of grant for meeting the cost of rating of MFIs would be met
by NABARD to the extent of 100% of the total professional fees subject to a
maximum of Rs.3,00,000. The remaining cost would be borne by the concerned MFI.
MFIs which have a minimum loan outstanding of more than Rs. 50.00 lakh (Rupees
fifty lakh only) and maximum of Rs. 10 crore (Rupees Ten crore only) would be
considered for rating and support under the scheme. Financial assistance by way
of grant would be available only for the first rating of the MFI. The Scheme
was operational up to 31 March 2010. MFIs availing Capital Support and/or
Revolving Fund Assistance from NABARD are also eligible for re-imbursement of
50% of the cost of professional fee charged by Credit Rating Agency for second
rating subject to a maximum of Rs.1.50 lakh (i.e. 50% of Rs.3 lakh). This will
be in addition to the reimbursement of professional fee for first rating of the
MFI. During 2009-10, NABARD has provided grant support of Rs. 15.83 lakh for
rating of 13 MFIs to Banks or MFIs. The MFI-wise details of the grant support
provided by NABARD for rating of the MFIs during the year are given below.
Table 3.2: MFIs Assisted With Grant Support for Rating during
the Year 2009- 2010
(Amount in Rs.)
Sr.
No.
Name of Agency State Grant
Amount
1. Unique Social Equity – State Bank of
India
Kolkatta 80000
2. Asha Welfare – State Bank of India Kolkatta 100000
3. Organization for Development and Coordination Orissa 155000
4. SAMUHA – State Bank of India Karnataka 100000
5. PARAYAS Gujarat 112360
6. Vardan Socio Development Foundation Gujarat 100000
7. Sanjana Finance Pvt. Ltd. Bihar 165450
8. CDOT Nalanda Bihar 112360
9. Vikas MACTS Vishkhapatnam Andhra Pradesh 132360
10. Chinyard – State Bank of India Karnataka 112360
11. SMS Ltd. Orissa 110300
12. Gram Utthan Orissa 165450
13. Gram Vikas Kendra Kolkatta 137875
Total 1583515
Source: NABARD Annual Report, 2009-10.
Revolving Fund Assistance
(RFA) to MFIs: Recognising the role played by MFIs, in extending micro finance
services in the unbanked areas, NABARD extends support to these institutions
through grant and loan based assistance. NABARD has been selectively supporting
MFIs for experimenting with various micro finance models such as replication of
Grameen Model, NGO networking (bigger NGOs supporting smaller NGOs), credit
unions and SHG federations, among others, to meet credit requirements of the
unreached poor. NABARD provides loan funds in the form of revolving fund
assistance (RFA) on a selective basis to MFIs to be used by them for on-lending
to SHGs or individuals.
Micro Finance
Development and Equity Fund (MFDEF): Recognising the need for upscaling the
micro finance intervention in the country, the Union Finance Minister, in the
budget for the year 2000-01, announced creation of a Micro Finance Development
Fund (MFDF). The objective of the MFDF is to facilitate and support the orderly
growth of the micro finance sector through diverse modalities for enlarging the
flow of financial services to the poor, particularly for women and vulnerable
sections of society, consistent with sustainability. Consequently MFDF with a
corpus of Rs.100 crore was established in NABARD. The Reserve Bank and NABARD
contributed Rs.40 crore each to the fund, while the balance was contributed by
eleven selected public sector banks. As per the Union Budget announcement for
the year 2005-06, the MFDF was re-designated as ‘Micro Finance Development and Equity
Fund’ (MFDEF) with an increased corpus of Rs.200 crore and same has been
further increased to Rs. 400 crore during 2010-11. The fund is being managed by
a board consisting of representatives of NABARD, commercial banks and
professionals with domain knowledge. The Reserve Bank is a member of the
Advisory Committee of the MFDEF. The MFDEF maintained by NABARD is used for
capacity building management information services, regulatory and supervisory
framework, studies and publications etc. It was later in 2005-06, doing re-
promotion of micro finance through scaling-up of the SHG-bank linkage
programme, extending RFA and capital support to MFIs and undertook various
promotional initiatives. Accordingly, NABARD formulated a scheme called
‘Capital/Equity Support to MFIs’ in 2007-08 for providing Capital/equity
support to various types of MFIs to enable them to leverage commercial and
other funds from banks. This would help MFIs in providing financial services at
an affordable cost to the poor. During 2009-10, NABARD introduced a new scheme
for ‘Capital Support to start-up MFIs having potential to scale-up their
activities but lacking in capital, infrastructural facilities and managerial
skills. Micro-Finance Organisations (MFOs) and MFI-NBFCs, identified as ‘Start
ups’ on the basis of area of operation, client outreach, lending model,
borrowing history, etc., are eligible for support under the scheme. Financial
support will be in the form of ‘subordinated debt’ which shall be sub-ordinate
to the claims of all other creditors. The quantum of support will be
commensurate with the business plan of the MFO / MFI-NBFC but not exceeding Rs.
50 lakh in any case. The rate of interest has been fixed at 3.5 per cent to be
repaid over a period of 7 years including moratorium of 2 years. During
2009-10, under Capital Support Scheme, 10 proposals amounting to Rs. 6.87 crore
were sanctioned to 10 MFIs and disbursed Rs. 7.87 crore. The outstanding under
Capital support as on 31 March 2010 was Rs. 24.17 crore against 31 MFIs. During
2011-12, Rs. 33.31 crore was released of which Rs. 28.68 crore was grant
support for promotional activities and Rs. 4.63 crore for capital support and
lending resources to MFIs. As against a total corpus of Rs. 200 crore
contributed by RBI, NABARD and commercial banks, the actual (cumulative)
utilisation of the fund stood at Rs. 278.31 crore as on 31 March 2012. NABARD
has been augmenting this fund from its own resources and has also been
crediting interest on the unutilized portion of this fund. There have been no
further receipts forthcoming from other contributors of this fund.
INITIATIVES COMMENCED BY NABARD DURING THE YEAR 2011-12
Tablet PC Based Accounting System for SHGs: This is a web cum
tablet enabled SHG bookkeeping solution being piloted in 100 SHGs in
Maharashtra state. The tablet will be used by field staff of NGOs to maintain
and update SHG’s data and it would facilitate the monitoring of SHGs. SHG can
also access copies of financial transactions, final accounts etc on payment of
nominal fees. The pilot scheme also intends to work out a revenue model for
such field staff. Various graphical as well as analytical reports can be
generated which help to monitor the particular SHG at micro level. All the SHG
members and cooperative bank personnel who have promoted the groups have been
trained and have started using the Tablet. Mobile Based Accounting System for
SHGs: NABARD has initiated a pilot project on SHG Book keeping project for 100
SHGs in Tamil Nadu, using mobile handsets. The application is expected to help
SHGs to maintain their financial transactions electronically in the local
language and allows ease of monitoring to all stakeholders. SHG transactions are entered through the
mobiles owned by SHGs. Besides the financial transactions, attendances etc. are
also captured through this mechanism. The other stakeholders including SHPI
/Bank /NABARD could generate MIS report on a regular basis through a web access
or through automated e-mail system. SMS updates
are sent to every member of the group on weekly basis to ensure
smooth running of
the group.
Web Based MIS for Tracking SHPI-Partners: A web-based
application for
monitoring the progress of all SHPIs partners provided with
grant assistance by
NABARD for promotion of SHGs has been launched by NABARD. The
website
(www.nabardshg.in) will help electronic updation of progress on
real time basis by
SHPI and help monitoring the progress of all SHPI projects. The
SHPIs will be
required to register themselves in the website and also gain
access to guidelines, tool
kits, study materials etc.
E-bookkeeping Through POS/Handheld Device: This is yet another
ICT enabled
bookkeeping endeavor for SHGs using handheld devices which are
normally used for
electronic ticketing. The device will capture the accounting and
book keeping aspects
of SHGs and generate no. of reports which can be printed
instantly. The data can also
be transferred to a PC and reports can be generated. SHG members
can know their
savings, loan outstanding, bank balance etc. It is being
implemented on a pilot basis in
Uttar Dinajpur district of West Bengal.
Computer Munshi System: PRADAN evolved the Computer Munshi
System to
improve the book keeping of the self Help groups (SHGs), so as
to improve
transparency, equity and longevity of its groups. The model
basically aims to improve
the accounting and book keeping of the SHGs. A member,
acceptable to all the
members and capable, of the group is selected and trained in
book keeping. He is the
Group Accountant (GA). He is supported by a Computer Munshi
(CM), who is
equipped with a computer and printer in a central location with
power connection. A
CM is expected to serve about 300 groups. Regular Monthly
Transaction Statement
(RMTS) consisting of the weekly savings and credit transactions
and balances,
including expenditure and income statement is delivered to the
CM. The CM enters
these accounts in the computer and sends back the corrected
statement to the GA. The
system is designed to be self-corrective, as the GA is warned
each week about the
discrepancies, if any. Similarly the CM is also warned of
discrepancies every week.
Monthly trial balance for the group is prepared by the CM which
is discussed in the
monthly meetings of the group. The group pays a fee to both the
GA and CM. As on
March 2005, there were 48 CMs saving about 2000 groups. The
model is cost
effective, helps in timely preparation of accounts and
identifying the discrepancies at
the initial stages. PRADAN was provided with grants by NABARD,
SIDBI, and
DFID.
INITIATIVES BY SIDBI
SIDBI launched its micro finance programme in February 1994 on a
pilot
basis. The programme provided small doses of credit funds and
limited amount of
capacity building grant to the NGOs all across the country. To
take the agenda
forward, the SIDBI Foundation for Micro Credit (SFMC) was
created in January
1999. SFMC’s mission is “to create a national network of strong,
viable and
sustainable Micro Finance Institutions from the informal and
formal financial sector
to provide micro finance services to the poor, especially
women’’.
SIDBI’s pilot programme of 1994 showed that collateral-based
lending does
not work insofar as micro finance is concerned. NGOs/ MFIs
acting as financial
intermediaries do not have tangible collateral to offer as
security for the loans. With a
view to catering to this objective, SIDBI pioneered the concept
of capacity assessment
rating (CAR) for the MFIs. As part of its developmental agenda,
SIDBI encouraged a
private sector development consulting firm to develop a rating
tool for the MFIs
which were rolled out in 1999. Two mainstream rating agencies,
viz., CRISIL and
CARE have also started undertaking micro finance ratings,
besides M-CRIL. SIDBI
has also adopted the institutional capacity assessment tool
(I-CAT) of access
development services (ADS), a private sector consulting
organisation, for rating of
start-up/small and mid-sized MFIs.
SIDBI introduced a product called ‘transformation loan’ in 2003
to enable the
MFIs to transform themselves from an informal set up to more formal
entities. This
loan is a quasi-equity product with longer repayment period and
features for
conversion into equity at a later date, when the MFI decides to
convert itself into a
corporate entity. Consequently, a number of MFIs went ahead with
the transformation
and some of them have now grown significantly and are serving
millions of clients
across several states. Today, SIDBI is one of the largest
providers of micro finance
through the MFIs.
Table 3.3: MFIs Supported by SIDBI
(Amount in Crore)
No. of MFIs Amount
Loans disbursed to MFIs during 2009-10 88 2665.75
Loans outstanding against MFIs as on 31 March 2010 146 3808.20
Source: NABARD Annual Report, 2009-10. MFI-BANK LINKAGE
PROGRAMME: INITIATIVES
The Committee on Financial Inclusion (Government of India, 2008)
has recommended that greater legitimacy, accountability and transparency will
not only enable MFIs to source adequate debt and equity funds, but also
eventually enable them to take and use savings as a low cost source for on
lending. These developments resulted in Andhra Pradesh Government promulgating
an ordinance to severely restricting their lending operations and recovery
mechanism. As a result, the lending operations of these institutions virtually
came to a halt not only in AP where most of their lending operations were
concentrated but in other areas as well while the recovery of loans nose-dived.
The Reserve Bank of India has since notified guidelines for the lending
operations of MFIs based on the Malegam Committee recommendations. A new class
of financial organizations named as NBFC-MFIs has been created and subject to
certain conditions regarding the capital to be employed, landings to SHG
members, cap on interest to be charged and margin to be retained, etc. The
loans extended to these NBFC-MFIs by banks now qualify for priority sector
loan.
The progress under MFI-Banks linkage programme during the last 4
years is
shown in table below:
Table 3.4: Progress under MFI-Bank Linkage Programme
(Amount in Crore)
Particulars
2008-09 2009-10 2010-11 2011-12 2012-13
No. of
MFIs Amount No. of
MFIs Amount No. of
MFIs Amount No. of
MFIs Amount No. of
MFIs Amount
Loans
disbursed by
banks to MFIs
581
(12.2%)
3732.33
(89.4%)
779
(34%)
10728.50
(187.4%)
471
(-39.5%)
8448.96
(-21.3%)
465
(-1.3%)
5205.29 (- 38.39%)
426
(-8.4%)
7839.51
(50.6%)
Loans
outstanding
against MFIs
as on 31
March
1915
(72.7%)
5009.09
(82.2%)
1659
(-13.4%)
13955.75
(178.6%)
2315
(39.5%)
13730.62 (- 2.0%)
1960
(-15.3%)
11450.35 (- 16.6%)
2042
(4.2%)
14425.84
(26.0%)
Fresh loans as
% of loans
outstanding
74.5 76.9 61.5 45.5 54.3
Note: Actual number of MFIs availing loans from Banks would be
less than the figures shown as most of MFIs avail loans from more than one
Bank. Source: NABARD Annual Reports.
112
MFI BANK PARTNERSHIP MODEL – AN INITIATIVE BY ICICI BANK
In 2002, India’s largest private sector bank, ICICI Bank,
initiated an MFI partnership model according to which MFI loans remained on the
bank’s balance sheet though the loan origination, monitoring and collection
services were performed by the MFI for a fee. The MFI also shared the credit
risk up to a specified level. The policy environment largely supported this
innovation which increased considerably the pool of funds available for MFIs.
In 2006, undesirable practices of some MFIs in
Andhra Pradesh led the RBI to initiate new measures. RBI urged
banks to strengthen
their Know-Your-Customer (KYC) procedures by ensuring receipt of
day-end
transaction information, as the loans were on the books of the
bank. This means that
the model can be used only in situations where the bank and MFI
have the
technology, necessary to meet the above requirement.
Institutions agree to promote and strengthen the micro-finance
movement in
the country by bringing the low-income clients to the mainstream
financial sector.
They also agree to build progressive, sustainable and
client-centric MFIs in the
country to provide integrated financial services to the clients.
Their aim should be to
promote cooperation and coordination among MFIs and other
agencies to achieve
higher operating standards and avoid unethical competition in
order to serve the
clients better. The Voluntary Mutual Code of Conduct for
member-MFIs sharply and
elaborately focus on integrity, fair practices, governance and
feedback/grievance
mechanisms, transparency in interest rates is an attempt to
introduce uniform practices
in the sector. Since the country has adopted ‘Multi-Agency
Approach’ for providing
financial services in rural areas through two-tier cooperative
credit structure, public
and private sector commercial banks, regional rural banks, local
area banks it is most
important that these financial institutions among them adopt
this voluntary mutual
code of conduct in their own interest in particular and for the
larger benefit of rural
households in general. Demand for financial services in rural
areas has indeed not
been genuinely created [clients are served as and when they
approach] through
creating enabling environment by the Government, rural financial
institutions and
private sector business community. As a result, at present there
is in reality no
competition. However, there is need for healthy competition, for
obvious reasons,
among rural financial institutions, which need to voluntarily
adopt this mutual code of
conduct. In addition the microfinance industry has taken some
significant steps
towards systemic regulation.
Recognizing the need for better governance practices, and in the
absence of
formal regulation, several MFIs came together in 2009 to
constitute the previously- mentioned Micro Finance Institution Network (MFIN).
MFIN is a self-regulatory
organization created by 44 NBFC MFIs in India, who share an
interest in protecting
and building the integrity of the sector. This was in response
to controversies such as
multiple lending and lack of transparency by MFIs. MFIN has
already taken some
steps such as building a credit bureau, creating task forces for
transparency and
establishing a code of conduct.
