 Over the years, micro-finance institutions (MFIs) have spread out the frontiers of their functioning and have brought the small and micro enterprises and the poor under the official financial structure and facilitated them to fight poverty, financial crisis and access credit.
Moving a step forward, in order to bring small borrowers within the banking fold, MFIs are likely to float their own banks to assist these credit seekers, including small and micro entities. This is subject to the Reserve Bank of India’s (RBI) approval of the same.
“The proposed move will not only help MFIs to penetrate their functioning in the rural areas but also help them to render financial services to the un-served people. However, in order to make this plan successful, the government and RBI first needs to make some changes in the existing legal and regulatory structure,” said Samit Ghosh, CEO and managing director of Ujjivan Financial Services Pvt. Ltd., a Bengaluru-based MFI, in an interview with a Bizxchange correspondent.
Current scenario
Presently MFIs are only allowed to offer credit, which they source from banks. As a result, the rates of interest charged on the loans lent out are too high for many small borrowers to afford. If RBI gives green signal to MFIs to set up banks, lending rates for small borrowers of MFIs are expected to go down.
“This will naturally help the small and micro enterprises to borrow money from the MFIs. Earlier, many of them could not borrow money from MFIs because of the high, diverse and area-specific rates of interest. But now, with the new move on the cards, at least 25 million people will come under the banking fold, thereby boosting banking system in the country,” said Chandra Shekhar Ghosh, CMD of Bandhan Financial Services, a Kolkata-based leading MFI.
RBI has already placed the discussion paper on allowing new players to constitute banks in the country. It has also worked on the guidelines and is examining the suggestions submitted by the interested stakeholders and other parties.
Shalmoli Kundu
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