MUMBAI, OCT 18: National Bank for Agriculture and Rural Development (Nabard) has recommended that microfinance institutions should be registered with a suitable regional or national authority. The report submitted to RBI governor on Monday by the task force on supportive policy and regulatory framework for microfinance also recommended main streaming of the institutions and their effective regulation and capacity building.The 15-member task force was formed by Nabard under its managing director YC Nanda to suggest a national policy framework for development of the microfinance sector and to arrive at a conceptual policy framework for its regulation, financing, capacity building and inter-institutional coordination."MicroFinance (MF) is the provision of thrift, credit and other financial services and products of very small amounts by the MicroFinance institutions (MFIs) to the poor in rural, semi-urban or urban areas. However, a large number of the hardcore and asset less poor continue to remain outside the fold of the formal banking system," the report said.Requirements of micro credit are expected to be much more than Rs 15,000 crore per year. As against these estimates, bank advances to weaker section aggregated Rs 9,700 crore during 1997-98, while MFIs and SHGs are estimated to have provided about Rs 137 crore, suggesting a vast unmet gap in the provisions of financial services to the poor.It recommended the promotion of Self-Regulatory Organisations (SROs) to regulate functioning of MFIs, evolve systems for maintenance of accounts and reporting, set performance standards and conduct inspections. "The SROs should be registered as non-profit organisations evolving from the MFI sector with a duly elected governing body and a minimum membership of 50 MFIs," the report said.All existing and new NGO-MFIs should be registered with a designated regional authority. Those MFIs which mobilise savings above Rs 25 lakh, besides reserve requirements of 15 per cent and registration with RBI, compliance with prudential accounting norms, may be prescribed by the RBI in consultation with NABARD and other agencies.The savings mobilised by the MFIs should be with drawable as per the discretion of the savers and may not be kept with the MFIs for a period exceeding five years. In case any MFI mobilises savings in excess of Rs 25 lakh, it may also have to go for rating by any accredited agency. On the lines of infrastructure companies, any income by way of dividend or capital gains from investments in the equity shares of MF companies should be exempt from Income Tax and MFIs should be encouraged to set up Local Area Banks (LABs) with focus on MF.The task force recommends setting up of a microfinance development fund (MFDF) in Nabard for extending such assistance to MFIs, SROs, banks, SHGs and others. Such a Fund could be set up with a start-up contribution of Rs100 crore from the GoI and annual contributions from profits by RBI and NABARD."Five years hence, we are looking for a process change leading to empowerment of 75 lakh poor households, and more particularly of the women from these households, through SHGs and MFIs with the message that banking with the poor is a profitable business opportunity for both the poor and the banks," it said.
