India: No More Cheap Funds to MFIs from Banks

Sep 2010
Haryana, India, September, 08 2010 - Microfinance institutions (MFIs) may lose access to cheap funds from banks in the upcoming two years if the RBI decides to execute the recommendations by one of its committees.

A committee constituted by RBI under the guidance of executive director VK Sharma said in its report that the priortity sector stature currently offered to non banking financial companies (NBFCs) should be withdrawn.

According to a NABARD official, "A big reason why banks lend to MFIs is that these loans are classed as priority sector lending. Without this status, not only will banks charge more for these loans, they will also have to find other options for rural lending to offset these loans."

Vijayalakshmi Das, MD of Ananya Finance for inclusive growth and Founder, Friends of Women World Banking, (lender to MFIs) says without priority sector lending benefits, microfinance cannot survive." The due diligence carried out by banks will be very different, for one. Today, by virtue of the fact that we lend to the poor, it is easy to convince a banker to lend to us. That advantage will go away," she says.

The report contains recent steps taken by the apex bank in bringing about financial inclusion in the country- including giving permission to banks to open branches in Tier II and Tier III cities without getting RBI clearance on the issue.

Source : Rupee Times

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