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Microfinance Focus February 28, 2011: Finance Minister, Pranab Mukherjee on Monday presented to the Parliament India’s Union budget for the year 2011-2012. Mukherjee made important statements relating to Microfinance and Financial Inclusion.

Here are some relevant points from the Union Budget 2011-2012 relating to Microfinance and Financial Inclusion.

Micro Finance Institutions

The finance minister stated that Micro Finance Institutions (MFIs) had emerged as an important means to financial inclusion.   Creation of a dedicated fund for providing equity to smaller MFIs would help them maintain growth and achieve scale and efficiency in operations.

He proposed to create in the course of the year, ‘India Microfinance Equity Fund’ of Rs 100 crore with SIDBI.

He also said that to empower women and promote their Self Help Groups (SHGs), he intended to create a ‘Women’s SHG’s Development Fund’ with a corpus of Rs 500 crore.
The Committee set up by RBI to look into issues relating to micro finance sector in India had submitted its report. The Government was considering putting in place appropriate framework to protect the interests of small borrowers.

Financial Inclusion

The minister in his last budget speech had advised banks to provide banking facilities to habitations with a population of over 2000 by March, 2012.  The Banks identified about 73,000 such habitations for providing banking facilities using appropriate technologies.
A multi-media campaign, “Swabhimaan”, had been launched to inform, educate and motivate people to open bank accounts. During the year 2011, banks will cover 20,000 villages. Remaining will be covered during 2011-12 stated the minister.

Unorganized sector

Mukherjee had announced a co-contributory pension scheme ‘Swavalamban’ in the Budget of 2010-11. The scheme had been welcomed by the workers in unorganized sector. Over 4 lakh applications had already been received and on the basis of the feedback received, he relaxed the exit norms whereby a subscriber under Swavalamban would be allowed exit at the age of 50 years instead of 60 years, or a minimum tenure of 20 years, whichever was later. He also made a proposal to extend the benefit of Government contribution from three to five years for all subscribers of Swavalamban who enroll during 2010-11 and 2011-12. An estimated 20 lakh beneficiaries will join the scheme by March 2012 said the minister.
Under the on-going Indira Gandhi National Old Age Pension Scheme for BPL beneficiaries, the eligibility for pension was proposed to be reduced from 65 years at present to 60 years. Further, for those who are 80 years and above, the pension amount would be raised from Rs 200 at present to Rs 500 per month.

Financial Sector legislative Initiatives

The Finance Minister said that in his last Budget speech, he had announced that Reserve Bank of India would consider giving some additional banking licenses to private sector players.  Accordingly, RBI had issued a discussion paper in August, 2010, inviting feedback from the public. RBI proposed some amendments in the Banking Regulation Act. He intended to bring suitable legislative amendments in this regard in the session. RBI was planning to issue the guidelines for banking licenses before the close of the financial year of 2011.

Micro, Small and Medium Enterprises

Micro and Small enterprises play a crucial role in furthering the objective of equitable and inclusive growth said the minister. He explained that last year, Rs 4,000 crore was provided to SIDBI for refinancing incremental lending by banks to these enterprises and for the year 2011-12, he proposed to provide Rs 5,000 crore to SIDBI for the same purpose out of the shortfall of banks on priority sector lending targets.

Handloom weavers have been facing economic stress he said. Consequently, many of them have not been able to repay debts to handloom weaver cooperative societies which have become financially unviable. He intended to make provision of Rs 3,000 crore to NABARD, in phases for the cooperative societies. The initiative would benefit 15,000 cooperative societies and about 3 lakh handloom weavers. The details of the scheme would be worked out by the Ministry of Textiles in consultation with Planning Commission

Housing Sector Finance

Speaking about housing and finance sector, the minister stated provision of housing finance to targeted groups in rural areas at competitive rates and enhancing the provision under Rural Housing Fund to Rs 3,000 crore from the existing Rs 2,000 crore was required.
Credit enablement of Economically Weaker Sections (EWS) and LIG households was a serious challenge he said. To address this issue, the minister made a proposal to create a Mortgage Risk Guarantee Fund under Rajiv Awas Yojana. The scheme would guarantee housing loans taken by EWS and LIG households and enhance their credit worthiness.

Agriculture Credit

The Minister explained that to get the best from their land, farmers needed access to affordable credit. Banks had been consistently meeting the targets set for agriculture credit flow in the past few years.  For the year 2011-12, he spoke of raising the target of credit flow to the farmers from Rs 3,75,000 crore this year to Rs 4,75,000 crore in 2011-12.  Banks had been asked to step up direct lending for agriculture and credit to small and marginal farmers.

In view of the enhanced target for flow of agriculture credit, the minister proposed to strengthen NABARD’s capital base by infusing Rs 3000 crore, in a phased manner, as Government equity.  This would raise its paid-up capital to Rs 5,000 crore. To enable NABARD refinance the short-term crop loans of the cooperative credit institutions and RRBs at concessional rates, he intended contribution of Rs 10,000 crore to NABARD’s Short-term Rural Credit Fund for 2011-12 from the shortfall in priority sector lending by Scheduled Commercial Banks.