According to Indian rating agencies Credit Rating and Information Services of India Limited (CRISIL) and ICRA Limited (formerly Investment Information and Credit Rating Agency of India), a recent proposal by the Reserve Bank of India (RBI), India’s central banking authority, to regulate the country’s microfinance industry will result in slower growth and smaller profits for microfinance institutions (MFIs) that will lead to a consolidation in the sector. RBI’s proposal, which was made last week by a subcommittee headed by Y H Malegam, RBI’s central board director, is geared towards curbing over-indebtedness and includes limiting lending to two loans to an individual borrower and introducing a cap of INR 25,000 (USD 548) for all loans to a single microborrower.
While both rating agencies assert that the proposals will have a positive affect in the long run, they suggest that the challenge will be to implement and monitor the new restrictions. However, ICRA also highlights a potential setback saying, “On the negative side, restrictions on total loan size of INR 25,000 may not fulfill entire financing requirement of an individual borrower, forcing her to look at alternate avenues for funding.”
By Julie Moksim, Research Associate
About Credit Rating and Information Services of India Limited (CRISIL): Founded in 1987, CRISIL is an Indian ratings, research, risk and policy advisory company that is based in Bangalore, India. It provides ratings for microfinance institutions (MFIs), including approximately 30 that report to the Microfinance Information Exchange, the microfinance information clearinghouse. Its offerings also include research on India’s economy, investment research outsourcing, fund services, risk management and infrastructure advisory services. CRISIL’s majority shareholder is Standard & Poor’s, the US-based credit rating agency.
About ICRA Limited: Formerly known as the Investment and Credit Rating Agency of India Limited, ICRA Limited was established in 1991 through the collaboration of commercial banks, investment companies and financial services institutions. It is a public, limited company with shares listed on the Bombay Stock Exchange and the National Stock Exchange of India. Its largest shareholder is Moody’s Investors Service of the US.
Sources and Resources:
The Times of India: “RBI Proposals May Drive MFI Consolidation”, January 21, 2011, http://timesofindia.indiatimes.com/business/india-business/RBI-proposals-may-drive-MFI-consolidation/articleshow/7330117.cms
Microcapital.org Brief, January 26, 2010: Reserve Bank of India (RBI) Subcommittee Proposes Regulation for Microfinance Institutions, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-subcommittee-proposes-regulation-for-microfinance-institutions-mfi/
MicroCapital.org Brief, November 15, 2010: India’s Microfinance Industry on Brink of “Collapse” Due to Credit Freeze in State of Andhra Pradesh, https://www.microcapital.org/microcapital-brief-indias-microfinance-industry-on-brink-of-collapse-due-to-credit-freeze-in-state-of-andhra-pradesh/
MicroCapital’s Microfinance Universe Profile: Credit Rating and Information Services of India Limited (CRISIL)
MicroCapital’s Microfinance Universe Profile: ICRA Limited
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=ICRA
Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/
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