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Informist, Tuesday, Jan. 7, 2025

 

NEW DELHI – Department of Financial Services Secretary M. Nagaraju will chair a meeting with representatives of leading microfinance institutions and Reserve Bank of India-recognised self-regulatory organisations Sa-Dhan and the Microfinance Industry Network on Wednesday, an official aware of the development said. The meeting is primarily to address some of the concerns faced by the microfinance industry, primarily regarding funding requirements. 

 

The microfinance industry will likely propose creating a dedicated fund from which institutions can borrow or a credit guarantee mechanism to borrow from banks and other institutions, the official said. This comes at a time when the microfinance sector is seeing lower investor appetite owing to higher credit costs. Higher credit costs have also prompted the Finance Industry Development Council, a body representing non-banking finance companies registered with the RBI, to ask the government to announce a dedicated fund for refinancing NBFCs in the Budget for 2025-26 (Apr-Mar). 

 

At the meeting, microfinance sector representatives may also seek an equity funding mechanism from the government so that the sector can grow its operations, the official said. Additionally, representatives of the sector may also flag issues relating to the lack of data on self-help groups with the credit bureaus. The inability to assess the credit exposure of self-help groups could lead to over-leveraging and thereby affect asset quality. 

 

In an event organised by Sa-Dhan in October, Nagaraju had said that at the time of lending, microfinance companies should conduct thorough due diligence as the lack of capacity among borrowers to repay would hurt the sector. His comments on lending by microfinance companies followed the central bank taking action against four microfinance companies – Asirvad Micro Finance Ltd., Arohan Financial Services Ltd., DMI Finance Pvt. Ltd. and Navi Finserv Ltd – asking them to cease and desist from sanctioning and disbursing loans.

 

"We should be very careful in what we lend, when we lend, and how we lend because their financial literacy is limited... exposure to the outside world is limited," Nagaraju had said. End

 

Reported by Priyasmita Dutta

Edited by Saji George Titus

 

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