Microfinance Bill required to streamline smaller MFIs: NABARD chief

Mr. U.C. Sarangi, NABARD

Microfinance Focus, Nov. 3, 2009: Though major MFIs are against the Microfinance Bill, it is still required to address the needs of small and start-up MFIs, especailly in the NGO segment, said Mr. U.C. Sarangi, Chairman, National Bank for Agriculture & Rural Development (NABARD), on the sidelines of Microfinance India Summit in New Delhi last week.
Speaking to Microfinance Focus, Mr. Sarangi said the Bill would benefit those who do not come under the ambit of RBI or NABARD. Since major MFIs are under RBI purview as non-banking financial companies (NBFCs) and the self-help group (SHG) or cooperative model MFIs come under the NABARD, the Bill would cover the MFIs left out of these two categories, he explained.
The Bill would regulate the financial compliance by SHGs/NGO-MFIs in order to provide transparency and enhance their creditworthiness, Mr Sarangi added.
On the role of public sector banks which recently began providing loans to microfinance institutions, he sounded caution by banks on heavy funding of MFIs merely for expansion of portfolios. “Faster expansion of MFIs may not be good and their quality in providing services would suffer. Banks will have to be guarded against lending heavily for such expansion,” he said. A good governance and management would go a long way to motivate banks provide more lending to MFIs, he pointed out.
Mr Sarangi said he was happy with the functioning of SHGs and they were provided Rs. 12,000 crore last year to give a push especially in the northeastern region and other backward states. NABARD is keen to enhance livelihoods and watershed programs in these regions, he said.
On challenges facing the microfinance sector, he said improving quality of finance, especially scale of finance, sustainability and training personnel should be taken up on priority basis. He also said private sector should consider entering the microfinance lending sphere.

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