MFIs upbeat on equity fund creation

Written by fe Bureau | Updated: Mar 1 2011, 07:30am hrs
Microfinance institutions (MFIs) are quite upbeat on the creation of an equity fund to the size of Rs 100 crore to bail them out in the wake of the present crisis. They feel this dose of encouragement has come at the right time, even as the industry was wallowing in a cesspool of controversy.

Considering MFIs as an important means of financial inclusion, the government has proposed to create an India Microfinance Equity Fund of Rs100 crore with Small Industrial Bank of India (SIDBI). The creation of a dedicated fund for providing equity to smaller MFIs would help them maintain growth and achieve scale and efficiency in operations, according to industry chieftains.

"The government is now considering putting in place a framework to protect the interests of small borrowers,'' the finance minister said.

According to Alok Prasad, CEO, Micro Finance Institutions' network (MFIN), the response is overall positive and augurs well for the sector. The role played by MFI sector in promoting financial inclusion is being clearly recognised. While the initial corpus is modest, we can reasonably expect that more government funding will, overtime, flow into this fund. This, in turn, can also catalyse private equity inflows into the sector.

Says S Dilli Raj, CFO, SKS Microfinance, MFIs have emerged as an important means of financial inclusion. We are particularly pleased that this reconfirmation that microfinance is a national priority and is backed by concrete measures that will augment the flow of credit to the sector, such as the provision of Rs 5,000 crore to SIDBI for refinancing MSME exposure of banks. Besides, increasing the agricultural credit target from Rs 3,75,000 crore to Rs 4,75,000 crore and the credit target to minority communities to 15% is another facilitator. Banks can meet these targets by buying the agricultural and weaker sections receivables from MFIs. In addition, the Economic Survey's has recommended basic banking licences for MFIs.