The micro finance sector has started witnessing some positive developments after the Reserve Bank of India (RBI) allowed the continuance of priority sector lending (PSL) status for bank loans to micro finance institutions in May this year providing a clear sense of direction to the sector. The regulatory framework outlined in the draft micro finance bill released to the public in July, which is likely to be introduced during the winter session of Parliament, would help faster recovery of the sector, according to Alok Prasad, Chief Executive, Micro Finance Institutions Network (MFIN).

In an interaction with this correspondent, Mr. Alok Prasad said only in Andhra Pradesh there was no activity in lending and repayment and in other States there was significant recovery, following a number of measures announced by the Malegam Committee.

He said MFIN was the premier industry association engaged in an intensive process of dialogue with the RBI for providing additional inputs and clarifications from time to time. After the crisis in Andhra Pradesh, several measures have been announced to improve the condition of the microfinance industry and the only new regulation in place since the Andhra Pradesh Government's ordinance in October last year was the circular issued by the RBI in May this year.

Mr. Alok Prasad said many microfinance organisations especially in Andhra Pradesh have adopted corporate debt restructuring (CDR) to restructure their bank loans. MFIN was in discussion with the state government and was hopeful of reviving the microfinance activity in the state, he said.

According to him there would be consolidation in the industry through mergers as smaller microfinance institutions were finding it difficult to go alone due to regulatory caps on margins and the prevailing high interest rates. As for the initiatives taken by MFIN, Mr. Alok Prasad said the organisation would work closely with the regulators and other key stakeholders to achieve larger financial inclusion goals through microfinance. MFIN has formulated and implemented a well-defined code of conduct for its members numbering 49 through an intensive process of consultation with them and other stake holders.

Keywords: microfinance

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