MFIs hope for better time ahead

He also expressed hope that credit flow to the microfinance industry from various financial institutions,especially from banks,will improve next year.

In 2010,following a spate of suicides by harried MFI borrowers,after being allegedly harassed by the collection agents of MFIs,Andhra Pradesh,the largest MFI market with over a quarter of the Rs 20,000 crore micro-advances,issued an Ordinance,which strictly regulated the collection and lending practices. Later on,the state passed a legislation to effect the Ordinance into an Act.

These regulations had a very debilitating impact on the industry,as borrowers refused to pay up,leading to a credit crisis in the industry. Their woes escalated when banks refused fresh loans,as these micro-lenders were forced to default on their debt-servicing.

However,the Reserve Bank this month notified new norms by classifying microfinance lenders as NBFC-MFIs and brought them under its regulatory purview.

The RBI also put a cap on interest and margin at 26 and 12 per cent respectively,in its effort to bring about transparency and safeguards against harassment of clients.

8220;Due to the clarity on many issues on regulatory front,credit flow from banks is likely to increase next year,8221; says Ramanathan.