Microlenders Urge Rs 500 Cr Fund From Finance Ministry For Equity Support To Mfis

(MENAFN- KNN India) New Delhi, Jun 21 (KNN) In a move to bolster the microfinance sector, industry leaders have approached the Finance Ministry with a series of proposals aimed at enhancing growth and stability.

Sa-Dhan, a prominent industry body, has submitted a comprehensive letter to Union Finance Minister Nirmala Sitharaman, outlining several key recommendations.

At the forefront of these proposals is the creation of a Rs 500-crore fund under the National Bank for Agriculture and Rural Development (Nabard) to provide equity support for small and emerging microfinance institutions (MFIs).

This fund, reminiscent of the India Micro Finance Equity Fund (IMEF), is seen as crucial for fuelling the sector's expansion.

The microfinance industry has already demonstrated significant reach, with outstanding loans totalling Rs 1.5 lakh crore extended to over 5 crore households. However, Sa-Dhan argues that additional growth capital is essential for MFIs to further expand their operations and impact.

Addressing regional concerns, particularly in the Northeast, Sa-Dhan has proposed a dedicated Rs 200-crore fund under the North Eastern Development Finance Corporation (NEDFI).

This fund aims to provide fresh loans to MFIs in Manipur, where the microfinance portfolio has been under stress, to help restart their operations and contribute to economic rebuilding.

The industry body has also recommended a Rs 1,000-crore guarantee fund to facilitate bank loan access for smaller MFIs. This proposal comes as smaller MFIs, particularly those with portfolios below Rs 1,000 crore, face challenges in accessing debt funds from mainstream lenders due to lower credit ratings.

The suggested guarantee fund, to be managed by Nabsanrakshan (a Nabard subsidiary) or NCGTC of Sidbi, aims to address this issue by providing guarantee coverage for loans from banks and financial institutions.

Additionally, Sa-Dhan has proposed a Rs 250-crore transformation fund to support NGOs in their transition to NBFC-MFIs. This fund could be utilized by Sa-Dhan or by development finance institutions such as Nabard to extend transformation equity to these NGOs, facilitating their evolution into more structured financial entities.

For MFIs in Manipur, Sa-Dhan has suggested that the government consider extending long-term, interest-free loans or create a dedicated fund at NEDFI in the form of a grant fund or low-interest fund. This measure is aimed at helping MFIs fund poor people and contribute to rebuilding the local economy.

As the microfinance sector continues to play a vital role in financial inclusion and economic development, particularly in underserved areas, these proposals represent a significant push for government support to ensure sustained growth and stability in the industry.

The implementation of these measures could potentially reshape the landscape of microfinance in India, enhancing its reach and impact on grassroots economic development.

(KNN Bureau)

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