On June 3, 2010, the World Bank sanctioned a micro-finance loan of US$300 million, to be used by Small Industries Development Bank of India (SIDBI) for on-lending to micro-finance institutions (MFIs) in the country. Given the substantial amount of the credit, it is expected that MFIs as well as industry players would be upbeat about the business prospects. However, some key industry experts feel that the MFI segment needs more than just the US$300 million to grow further.

Commenting on the World Bank loan, AK Pani, an ex-official of the Agricultural Finance Corporation, says, “According to the estimates of the Associated Chambers of Commerce and Industry of India (ASSOCHAM), the total requirement of micro credit in the rural belts of India stands at Rs 50,000 crore. Therefore, the US$300 million micro-finance loan from the World Bank will not be adequate to meet that requirement. At the same time, it must be conceded that the investment avenue for small and micro industries in India is narrow, largely due to lack of quality products. Many MSMEs in rural places are unable to manufacture world-class products as the raw materials they use are mostly not of high-quality, whereby they are unable to attract investments and compete with bigger and global players.”

Lending rates to be lowered

According to Chandra Shekhar Ghosh, CMD of Bandhan, a leading MFI based in Kolkata, “Approval of micro-finance loan by the World Bank is a good initiative, but it can be effective only if the lending rates are lowered. Besides MFIs, there are also several small regional banks that are extending credit to rural customers and MSMEs, but their interest rates are high. Therefore, if MFIs, especially the small ones, intend to capitalise on the prospective loan from World Bank, they have to attract customers by reducing the lending rates.”

Going by the industry opinion, it can be said that despite the handsome loan from the World Bank, there still remains a lot to be done for bolstering the MFI segment.

Prasenjit Das