The microfinance industry has presented budget recommendations urging the creation of a Rs 250-crore equity support fund for small lenders and a Rs 200-crore transformation fund to facilitate NGOs transitioning into lenders. Industry body Sa-Dhan, in a letter to Finance Minister Nirmala Sitharaman, emphasized the importance of growth capital to extend services and cater to the credit needs of underserved populations.
Industry Perspectives: Addressing Capital Requirements for Expansion Sa-Dhan’s proposal seeks the establishment of a special fund, akin to the India Micro Finance Equity Fund (IMEF), within the National Bank for Agriculture and Rural Development (Nabard). This fund aims to provide equity support to small and emerging microfinance institutions (MFIs), fostering their growth. The suggested allocation for this fund is Rs 250 crore.
Despite an increase in the gross loan portfolio and borrower numbers, the debt-equity ratio of Non-Banking Financial Company (NBFC) MFIs has remained relatively static, at 3.5 in March 2021 and 3.6 in September 2023. Sa-Dhan underscores the need for growth capital to address this challenge and enable MFIs to expand their networks.
Transformation Fund for NGOs: Bridging Gaps in Lending Reach Highlighting the concentration of 70% of the loan portfolio in 200 districts, Sa-Dhan advocates for the creation of a transformation fund. This fund would extend transformation equity to NGOs and development institutions operating in areas where mainstream MFIs have yet to venture. The proposed fund, potentially housed in Sa-Dhan or DFIs like Nabard, would require an allocation of Rs 200 crore.
Guarantee Fund for Small MFIs: Ensuring Stability Amid External Interventions Sa-Dhan suggests the establishment of a guarantee fund for small MFIs to maintain stability, especially in the context of discussions around loan waivers as elections approach. The industry body emphasizes the need for a congenial environment to prevent external interventions that could disrupt repayment efficiency.
In the face of potential loan waivers, the letter recommends the government to consider enacting legislation to prevent indiscriminate and across-the-board loan waivers. This measure aims to safeguard the sector’s repayment efficiency and prevent unintended consequences.
