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FM proposes Rs 100 cr equity fund for MFIs

By Religare

In today's budget presentation, Mr. Pranab Mukherjee had said about providing the 100 crore equity fund to Micro Finance Institutions. In 2011-12 budget presentation Mukherjee announced the "India Microfinance Equity Fund". The fund was proposed with state-run Small Industrial development bank (SIDBI).In current scenario Micro finance institutions are facing many challenges like liquidity crunch because after the suicide of farmers in Andhra Pradesh, banks had stopped lending the money to these MFIs. Other one of the challenge is interest rate cap; the Malegam committee submitted its report on 19th January with the proposal of interest rate cap of 24% on loans provided by the MFIs. Hence for small MFIs, it is very hard to compensate with this cap. But on other hand the charging of interest rate more than 30% and using strong arms for collection these loans led activists to protest. For example Mohammad Yunus, founder of Grameen Bank and economist said such MFIs as "loan sharks". In last budget, the equity fund was doubled to Rs. 400 crore from 2009-10 budget. The infusion of Rs. 100 crore in this budget will help the MFI sector to overcome the challenges. During addressing the parliament FM stated about the importance of MFIs in financial inclusion, he said "The micro finance institutions (MFIs) have emerged as an important means of financial inclusion. Creation of a dedicated fund for providing equity to smaller MFIs would help them maintain growth and achieve scale and efficiency in operations." As of 31st March 2010, the number MFIs in India is 1,659 providing total credit of Rs 13,955 crore from the banking system.The announcement of 100 crore equity fund will definitely provide help to MFIs to overcome the challenges, it is positive statement from finance ministry for the industry.

Story first published: Tuesday, March 1, 2011, 12:36 [IST]
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