It is not a policy decision to stop lending to them. This is a misconception of the media, Sinha said in a telephonic interview. The amount we have lent to MFIs has fallen by a small amount. I dont have the exact data with me, but it was about R1,200 crore earlier, and now it is around R1,000 crore. Following the developments in Andhra Pradesh, there was uncertainty in the sector, so naturally lending would fall... Banks will be cautious and will follow a wait-and-watch policy, lending on a case-by-case basis.
The microfinance industry was plunged into a crisis of sorts following the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act that was passed to restrict the alleged coercive activities of MFIs .
On whether bank lending to MFIs will increase again, Sinha said that recoveries need to go up first. He said that once the Reserve Bank of India acts on the recommendations of the Malegam panel report, the uncertainty surrounding the sector would end, and lending would pick up. Banks will want some assurances from MFIs regarding transparency, he added. The Malegam committee was set up by the RBI to study the Indian microfinance sector.
The conference, with the theme Re-engineering Microfinance: Need for New Products & Policies, was organised by Ficci and Sa-Dhan, a platform for discussion in the community development finance field.
Speaking at the conference, Richard Weingarten, MD, Norwegian Microfinance Initiative, said that there were several barriers to investment in the Indian microfinance industry, such as the lack of a clear regulatory authority and the lack of domestic capital, all of which can be overcome.