An unnamed public-sector bank in India is reportedly looking to start a non-banking financial company (NBFC) that will disburse microloans to the poor, with the Indian central government, the government of the Indian state of Andhra Pradesh and the National Bank for Agriculture and Rural Development (NABARD) as equity investors. While a feasibility study is still being conducted by the Andhra Pradesh Mahila Abhivruddhi Society (APMAS), an organization that was founded in 2001 to provide technical support and consulting services to self-help groups (SHG) in Andhra Pradesh, the target start date for the NBFC is reportedly August 15. Once the feasibility study has been completed, a proposal will be sent for approval to the Reserve Bank of India, the country’s central banking authority. The proposed NBFC is expected to have INR 5 billion (USD 113 million) of authorized capital and INR 1.5 billion (USD 33.9 million) of paid-up capital. The Microfinance Institutions Network, a trade association of microfinance institutions (MFIs) in India, reportedly has criticized the proposal as an obstacle to the ability of registered MFIs to provide financing to the poor.
By Julie Moksim, Research Associate
About the Reserve Bank of India (RBI): 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 (NBFCs). 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, RBI reduced its stake in NABARD from 72.5 percent to 1 percent in October 2010.
About the National Bank for Agriculture and Rural Development (NABARD): The National Bank for Agriculture and Rural Development (NABARD) is a development bank in India that formulates the credit and banking policy for the rural sector, supervises and conducts on-site inspections of cooperatives and regional rural banks (RRBs) and promotes the development of microfinance activities in the rural sector. NABARD is charged with the oversight of the Microenterprise Development Programme, which focuses exclusively on the development of microenterprises. Through this program and the Microfinance Development and Equity Fund, an INR 2 billion (USD 44.6 million) fund designed to support the growth of microfinance, NABARD provides loans to nongovernmental organizations, nonprofit microfinance institutions (MFIs) and agricultural lending outfits. NABARD was formed by an act of the Indian Parliament in 1979 based on the recommendation of the Reserve Bank of India (RBI), which originally owned a controlling interest in NABARD but as of 2010 owns a 1-percent stake in the bank. While 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 upon its formation in 1979. As of March 2011, NABARD oversees 31 state cooperative banks, 370 district central cooperative banks, 86 RRBs and 18 state cooperative agricultural and rural development banks. In 2010, NABARD set a fiscal year target of INR 3,750 billion (USD 80.3 billion) for credit disbursement via commercial and government retail financial institutions, up from INR 3,250 billion (USD 69.6 billion) the previous year.
Sources and Additional Resources:
The Economic Times: “PSU Lender, AP Government May Start NBFC For Microfinance Credit”, April 17, 2011, http://articles.economictimes.indiatimes.com/2011-04-17/news/29427863_1_feasibility-study-nbfc-psu-bank
MicroCapital.org Brief, April 19, 2011: Indian Government Proposes Micro Financial Sector (Development and Regulation) Bill Include NBFCs, Andhra Pradesh Considers Non-banking Financing Company (NBFC) Model to Balance Microfinance Institutions (MFIs), https://www.microcapital.org/microcapital-brief-indian-government-proposes-micro-financial-sector-development-and-regulation-bill-include-nbfcs-andhra-pradesh-considers-non-banking-financing-company-nbfc-model-to-balance-mi/
MicroCapital.org Brief, April 1, 2011: Funding Shortage Continues in Indian State of Andhra Pradesh, Loans Overdue to SKS Microfinance Total $27m, https://www.microcapital.org/microcapital-brief-funding-shortage-continues-in-indian-state-of-andhra-pradesh-loans-overdue-to-sks-microfinance-total-27m/
Who’s Who in Microfinance: Andhra Pradesh Mahila Abhivruddi Society (APMAS), https://www.microcapital.org/whos-who-in-microfinance-andhra-pradesh-mahila-abhivruddhi-society-apmas/
MicroCapital’s Microfinance Universe Profile: Reserve Bank of India
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29
MicroCapital’s Microfinance Universe Profile: National Bank for Agriculture and Rural Development (NABARD)
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=National+Bank+for+Agriculture+and+Rural+Development+%28NABARD%29
Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/
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