Having faced a lull period in the last three months, micro finance institutions (MFIs) may see business returning to normal by the first quarter of FY12 while the repayment rate could drop to 95% in medium term.
The AP Bill on micro finance is being termed as a game changer and it is expected that business of MFIs will become normal by Q1 FY12. While interest rate charged by MFIs is not likely to be capped, return ratios would be bench marked to certain parameters, leading to some moderation in profitability. Loans granted by MFIs would continue to get the benefit of being classified as priority sector lending, says a Motilal Oswal report.
Maintaining the repayment efficiency based on monthly collection cycle would be a key challenge. Globally, the repayment rate for MFI loans is about 95% while for Indian MFIs, it is 98-99%. In the medium term, the rate in the country is likely to gradually trend towards 95%, the report said.
According to Alok Prasad, CEO, MFIN, all 44 members registered under MFIN have agreed for stricter adherence and monitoring as part of the code of conduct prescribed by MFIN to its members.
MFIN is also working closely with an NGO to increase transparency of loan pricing since March 2010 and initial results are scary with regards to pricing, the report said. The data would be normalised to make it comparable before being put in public domain which is expected by February 2011. MFIs have been given time till the end of December 2010 to alter the data submitted.
RBI is likely to create a regulatory framework for MFIs post the submission of the YH Malegam Committee report which is expected by January end. Besides, MFIN is in dialogue with RBI and is providing adequate support to create the necessary framework.
The central government is working towards a new Microfinance Bill, which is likely to be presented in Parliament in the next five months. The Bill may override all the state government regulations.