Economy

MFIs want regulatory framework

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The Micro Finance Institutions (MFIs) have emerged as important means of financial inclusion (FI) today. The Union Government is of the view that creation of a dedicated fund for providing equity to smaller MFIs would help them maintain growth and achieve scale and efficiency in operations. With this intention, the Finance Minister in the budget for 2011-12, has decided to create “India Microfinance Equity Fund” of Rs. 100 crore with SIDBI. Similarly, to empower women and promote their self-help groups (SGHs), he has introduced a “Women's SGH's Development Fund” with a corpus of Rs.500 crore.

Mahesh Ramachandran, Co-Founder and Chief Executive Officer, Commonwealth Microfinance (India), feels if financial inclusion is to achieve its objective of banking the unbanked, the ICT (information and communication technology)-based FI services through the “Business Correspondent” (BC) model need to be provided till the scale of operation reaches economic viability.

Currently, almost all technology service providers (TSPs) and the BCs find the FI services a difficult business proposition.

Banks, being commercial entities, expect subsidy or incentive for taking up large-scale FI services; if the Finance Minister could allocate funds for directly compensating banks for rolling out financial inclusion services, it would help the TSPs and BCs to take banking services to the hinterlands with renewed vigour and enthusiasm.

P. N. Vasudevan, Managing Director, Equitas Micro Finance, wants to have a proper regulatory framework for the sector now. If it is created, the sector welcomes a proper regulatory framework which would enable it to play a positive role in financial inclusion.

Similary, the budget did not provide details of how the SHG fund was to be used or what would be the activities to be undertaken in this respect.

On RBI coming out with a set of guidelines for issue of fresh banking licences before March 2011, Mr. Vasudevan hoped that the new guidelines would focus on licensing those new banks, which would provide the whole range of financial services.

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Printable version | Dec 13, 2019 5:24:02 AM | https://www.thehindu.com/business/Economy/MFIs-want-regulatory-framework/article14930370.ece

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