Saying that micro-finance movement needed to take deeper roots in India, Yunus said, India should set up an appropriate regulatory authority for micro-finance institutions (MFIs). Regulations for banks and MFIs should be different as MFIs cater to the poor and should be regarded as a social business as distinguished from the purely commercial banking operation.
According to Yunus, MFIs should be self-sustaining and be allowed to attract deposits and provide insurance and pension fund and as well as capacity building. He said that if MFIs are owned by borrowers there should be no payment of license fees. MFIs can source funds from banks. He was, however, not in favour of MFIs sourcing funds from outside the country. Funds should be preferably mobilized locally and distributed locally.
Defining micro-finance movement as 'social business', he said that in case of MFIs there should not be any scope for individual profit. All profits should be ploughed back to the MFIs for meeting the costs of transactions. The interest rates should be preferably lower. MFIs should ultimately be owned and operated by borrowers as is in the case in Bangladesh.
He defended that loans with interests charged by the Grameen Bank was not against the principles of Islam as the bank was owned and operated by borrowers. He said that loans were given to students in Bangladesh, most of who have opted to become entrepreneurs after completion of their study. Interest free loans amounting to 1000 taka were given to 100,000 beggars out of which 15,000 of them have stopped begging and set up small business.
Yunus is in India for participating in the one-day national micro-finance conference organized by the apex body, Sa-Dhan in Delhi on Tuesday.
Bangladesh has set up a regulatory authority for the Grameen Banks and another legistion for approval of MFIs as social banking institutions is pending for approval. In India a Bill for regulation of MFIs has been pending in Parliament since 2007. The proposed legislation has been delayed on the issue of lowering of interest rates. The joint secretary in the banking division of the Union finance ministry, Amitabh Verma said, The government is very keen on MFIs lowering their interest rates. The MFIs should carry out their operations without any subvention of interest rates by the Government.
Yunus squarely held the global banking and financial institutions for the current global economic crisis as they have befooled the investors through mere paper transactions. Banking regulations should clearly distinguish between gambling and business. There should be proper in-built mechanism to prevent business running into trouble. There should be insurance schemes for protecting deposits. Government should not bail out these institutions by doling out public money, he said.
Yunus defended the MFIs and said that it was catering to the 'real economy' and livelihood of millions of poor. The developing countries like India and Bangladesh have been largely insulated from the adverse impact of the current global financial crisis due to the presence of the 'real economy'. In Bangladesh 80% of the poor are covered by micro-finance and the remaining 20% is expected to be covered within next two years according to Yunus. He said that India which has reached only 20% coverage needs to speed up.