The government of India, the government of the state of Andhra Pradesh and a consortium of five unnamed private and public banks have submitted an application to the Reserve Bank of India (RBI), the country’s central banking authority, to establish a “microfinance bank” as an alternative to microfinance institutions (MFIs) in the state of Andhra Pradesh [1]. Although the microfinance bank will not take deposits, it will be registered as a non-banking finance company (NBFC) as was reported by MicroCapital on April 19, 2011 [2]. The proposed bank is be established with initial equity of INR 500 crores (USD 110 million) and is expected to offer loans at between 12 and 14 percent per annum, according to The Hindu Business Line, an Indian newspaper [1].
To address criticisms of microfinance in Andhra Pradesh, which include mistreatment of borrowers by MFI staff and exploitative profit-seeking behavior by commercial institutions, the proposed institution will work through networks of self-help groups (SHGs). SHGs are bodies of 10 to 20 individuals who pool their savings, can apply for loans as a group and may on-lend to their members. The microfinance bank will lend to regional federations of SHGs, which in turn will lend to village-level associations of SHGs that will disburse loans to member SHGs [1].
About Reserve Bank of India:
Established in 1935, the Reserve Bank of India undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI owns a one-percent stake in NABARD as of 2011.
By Rohan Trivedi, Research Associate
Sources and Additional Resources:
[1] The Hindu Business Line: “Soon, a microfinance bank for lending to the poor” by G Naga Sridhar, May 18, 2011, http://www.thehindubusinessline.com/industry-and-economy/banking/article2029616.ece?homepage=true
[2] MicroCapital.org story, April 19, 2011: “MICROCAPITAL BRIEF: Public-Sector Bank, Andhra Pradesh State Government May Launch Non-Banking Finance Company (NBFC) to Extend Microcredit to the Poor”, https://www.microcapital.org/microcapital-brief-public-sector-bank-andhra-pradesh-state-government-may-launch-non-banking-financial-company-nbfc-to-extend-microcredit-to-the-poor/
MicroCapital.org story, May 19, 2011: MICROCAPITAL BRIEF: Confusion Continues Over Regulation of Microfinance Institutions (MFIs) in India, State of Andhra Pradesh May Adjust Law to Reconcile With Federal Rules”, https://www.microcapital.org/microcapital-brief-confusion-continues-over-regulation-of-microfinance-institutions-mfis-in-india-state-of-andhra-pradesh-may-adjust-law-to-reconcile-with-federal-rules/
MicroCapital.org story, December 17, 2010: “MICROCAPITAL BRIEF: Local Government in Indian State of Andhra Pradesh Considers Additional Microfinance Regulation, Requires Disclosure of Operational Procedures”, https://www.microcapital.org/microcapital-brief-local-government-in-indian-state-of-andhra-pradesh-considers-additional-microfinance-regulation-requires-disclosure-of-operational-procedures/
MicroCapital Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/
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