13 hours Ago By Subhana Shaikh
During a pre-Budget consultation with the department of financial services secretary, Sa-Dhan—a self regulatory organisation for microfinance institutions and other members of the sector—has called for additional fund infusion. In order to augment credit supply into the microfinance sector and ensure steady growth, members have asked for extension of credit by setting up a special fund. This comes as the sector has been facing a funding crunch at a time when demand for micro-lending has slowed down due to higher interest rates.
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Upcoming Budget should create a special fund similar to India Micro-Finance Equity Fund (IMEF) for extending equity support to small and upcoming MFIs to expand their operations in the areas where most of the mainstream lenders are not available," Sa-Dhan said in a press release. As on March 31, 2024, the combined loan outstanding of the microfinance sector stood at Rs 4,42,700 crore. The pre-Budget meeting was attended by Department of Financial Services Secretary M Nagaraju, Sa-Dhan's Executive Director and Chief Executive Officer Jiji Mammen and other MFI CEOs.
The Union Budget for 2025-26 will be held on Feb. 1. Another request that has been put forth in front of the government is the funding support for credit operations.
The government may consider creating a dedicated funding mechanism for providing funds to MFIs in a cost effective manner, which could eventually bring down pricing of MFI loans. The government can also set up a credit guarantee scheme to help MFIs access credit from the banks and other financial institutions. Further, to increase the coverage of MFIs and their reach in inaccessible rural areas, the sector has asked the government that the budget should underline the need of capacity building of NGOs and development institutions to transform them into an MFI or a financial intermediary.
The coverage area of microfinance institutions is relatively lesser. The proportion of rural clientele is restricted to 77% in around 200 districts, mainly from the top five states such as Bihar, Tamil Nadu, Uttar Pradesh, Karnataka and West Bengal, which contribute 56% to the industry portfolio. Lastly, a special fund for north eastern states has also been requested as the region is suffering from the lack of banking facilities unlike other parts of the country.
A dedicated fund for financing poor households in the region may be considered. "In order to rebuild the microfinance ecosystem within the State, the Government may think of infusion of fresh equity by extending long-term, interest—free loans to MFIs for further funding to the needy borrowers and enterprises," the press release said. Further, the government may set up a dedicated fund at North Eastern Development Finance Corp.
, in the form of a grant fund or interest free or low interest kind of fund..
