Microfinance Focus February 28, 2011: Presenting the Parliament India’s Union budget for the year 2011-2012, Finance Minister, Pranab Mukherjee on Monday said that the Government is considering appropriate framework to protect interests of small borrowers.

Mukherjee said, “The Committee set up by RBI to look into issues relating to microfinance sector in India has submitted its report. The Government is considering putting in place appropriate framework to protect the interests of small borrowers.”

The Sub-Committee of its Central Board of Directors set up by the RBI, under Chairmanship of   Y H Malegam, had earlier addressed important concerns in the industry relating to regulation, transparency, coercive methods of recovery and funding.

The Sub-Committee recommended creation of a separate category of NBFCs operating in the microfinance sector to be designated as NBFC-MFIs. To qualify as a NBFC-MFI, the Sub-Committee had stated that the NBFC should be “a company which provides financial services pre-dominantly to low-income borrowers, with loans of small amounts, for short-terms, on unsecured basis, mainly for income-generating activities, with repayment schedules which are more frequent than those normally stipulated by commercial banks” and which further satisfies the regulations specified in that behalf.

The Sub-Committee cautioned that while recognizing the need to protect borrowers, it was also necessary to recognize that if the recovery culture was adversely affected and the free flow of funds in the system interrupted, the ultimate sufferers would be the borrowers themselves as the flow of fresh funds to the microfinance sector would inevitably be reduced.