A recent document published by the Reserve Bank of India (RBI), India’s central banking authority, introduces a standalone category for “non-banking financial company—microfinance institutions” (NBFC-MFIs) as was proposed by the Malegam Committee, an RBI-appointed panel headed by RBI board member YH Malegam. The creation of NBFC-MFIs is expected by some to make banks more comfortable lending to microfinance institutions (MFIs), which could alleviate the cash flow challenges facing parts of India’s microfinance sector.
While details of the NBFC-MFI category are not expected to be released until later in November, the Malegam Committee proposed that, in order to qualify as an NBFC-MFI, entity should meet the following requirements: (1) a minimum net worth of INR 15 million (USD 307,000); (2) 90 percent of the entity’s assets are loans disbursed to borrowers whose annual income is less than INR 50,000 (USD 1,000); (3) the amount of each of these loans does not exceed INR 25,000 (USD 500); (4) the term on these loans is no more than 12 months, if the loan does not exceed INR 15,000 (USD 300) and 24 months for larger loans; (5) the loan is without collateral and (6) a minimum 75 percent of the loans are for income generation.
NBFC-MFIs are introduced in the RBI’s second quarter review of Monetary Policy for 2011-12, which can be found at: http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=6775&Mode=0
By Cameron Milani, Research Associate
About the Reserve Bank of India: Established in 1935, the Reserve Bank of India (RBI) 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.
Sources and Additional Resources:
The Economic Times, “Creation of Low-Income Micro-Lending NBFC Cleared,” http://economictimes.indiatimes.com/news/news-by-industry/banking/financ…
Reserve Bank of India, “Report of the Sub-Committee of the Central Board of Directors of Reserve Bank of India to Study Issues and Concerns in the MFI Sector,” http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/YHMR190111.pdf
MicroCapital Article, July 8, 2011: “MICROCAPITAL BRIEF: Microfinance Institutions in India Continue to Struggle for Funding After Loan Recast, Adoption of Malegam Proposals,” https://www.microcapital.org/microcapital-brief-microfinance-institutions…
MicroCapital Article, February 8, 2011: “MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Relaxes Rules in Effort to Ease Microfinance Institution (MFI) Liquidity Crunch,” https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-relaxes-rules-in-effort-to-ease-microfinance-institution-mfi-liquidity-crunch/
MicroCapital Article, January 26, 2011: “MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Subcommittee Proposes Regulation for Microfinance Institutions (MFI),” https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-subcommittee-proposes-regulation-for-microfinance-institutions-mfi/
MicroCapital Universe, Reserve Bank of India: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Res…
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/
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