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    "Micro Finance": Bring Smile To Every Poor

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    Swarna Roy
    Microfinance involves providing small loans, savings opportunities, and other basic financial services to the poor. The Grameen Bank in Bangladesh pioneered microfinance, lending primarily to women without collateral starting in 1976 with a 97% repayment rate. However, over-regulation and a liquidity crisis in Andhra Pradesh in 2010 nearly shut down the microfinance industry there. In response, the Reserve Bank of India established new regulations for microfinance institutions in 2011 to promote the orderly growth of the industry while balancing consumer protection. Key aspects of the regulations include registration with RBI, maintaining required reserves and margins, and empowering RBI for oversight activities like audits, data collection, and issuing directives. While bringing more oversight, critics argue

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    "Micro Finance": Bring Smile To Every Poor

    Uploaded by

    Swarna Roy
    82 views9 pages
    Microfinance involves providing small loans, savings opportunities, and other basic financial services to the poor. The Grameen Bank in Bangladesh pioneered microfinance, lending primarily to women without collateral starting in 1976 with a 97% repayment rate. However, over-regulation and a liquidity crisis in Andhra Pradesh in 2010 nearly shut down the microfinance industry there. In response, the Reserve Bank of India established new regulations for microfinance institutions in 2011 to promote the orderly growth of the industry while balancing consumer protection. Key aspects of the regulations include registration with RBI, maintaining required reserves and margins, and empowering RBI for oversight activities like audits, data collection, and issuing directives. While bringing more oversight, critics argue

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    Micro Finance

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    Microfinance involves providing small loans, savings opportunities, and other basic financial services to the poor. The Grameen Bank in Bangladesh pioneered microfinance, lending primarily to women without collateral starting in 1976 with a 97% repayment rate. However, over-regulation and a liquidity crisis in Andhra Pradesh in 2010 nearly shut down the microfinance industry there. In response, the Reserve Bank of India established new regulations for microfinance institutions in 2011 to promote the orderly growth of the industry while balancing consumer protection. Key aspects of the regulations include registration with RBI, maintaining required reserves and margins, and empowering RBI for oversight activities like audits, data collection, and issuing directives. While bringing more oversight, critics argue

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    82 views9 pages

    "Micro Finance": Bring Smile To Every Poor

    Uploaded by

    Swarna Roy
    Microfinance involves providing small loans, savings opportunities, and other basic financial services to the poor. The Grameen Bank in Bangladesh pioneered microfinance, lending primarily to women without collateral starting in 1976 with a 97% repayment rate. However, over-regulation and a liquidity crisis in Andhra Pradesh in 2010 nearly shut down the microfinance industry there. In response, the Reserve Bank of India established new regulations for microfinance institutions in 2011 to promote the orderly growth of the industry while balancing consumer protection. Key aspects of the regulations include registration with RBI, maintaining required reserves and margins, and empowering RBI for oversight activities like audits, data collection, and issuing directives. While bringing more oversight, critics argue

    Copyright:

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    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 9

    MICRO FINANCE

    Bring Smile to every poor

    Micofinance
    Micro finance is defined as the provision of threft (savings), credit and other financial services and product of very small amounts to the poor foe enabling them to raise their Risk income levels and improve living. Saving mitigatio
    s Pensio ns Financial counselin g Remittan ce Insuranc e n products

    Loans

    Bangladesh Granmeen Bank


    Jobra, Bangladesh, in 1976. No Collateral, No Legal Instrument, No Group-Guarantee or Joint Liability. 97 per cent Women. Recovery Rate Over 97 per cent. 100 per cent Loans Financed From Banks Deposits. No Donor Money, No Loans. Beggars As Members. Housing For the Poor, Micro-enterprise Loans, Scholarships, Education Loans

    Andhra Pradesh MFI, 2010


    The combination of minimal regulation and rapid sector growth led to an environment where customers were increasingly dissatisfied with microfinance services, culminating in the Andhra Pradesh crisis in the fall of 2010. So, in October 2010, with no warning or consultation with stakeholders, the Government of Andhra Pradesh issued the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act, 2010 effectively shutting down all private sector microfinance operations in the state. The AP Act does not however apply to APs governmentbacked microfinance business which directly competes with private sector MFIs. This was a major blow to the entire microfinance industry as Andhra Pradesh, widely regarded as the birthplace of private sector microfinance, accounts for over 40% of all loans by MFIs across India according to some estimates .

    Contd
    As a result of the ordinance, and the general attitude towards microfinance in Andhra Pradesh, loan repayments dropped dramatically. Due to low repayment rates, microfinance institutions, with exposure to Andhra Pradesh, suffered significant losses. Banks stopped lending to microfinance institutions all over India, for fear that a similar situation would occur elsewhere, resulting in a liquidity crunch for microfinance institutions, which are largely dependent on bank lending as a funding source. With the sector at a standstill, microfinance institutions, microfinance clients, banks, investors, and local governments were calling for new regulation to address the prominent issues of the sector. The Reserve Bank of India (RBI) responded by appointing an RBI sub-committee know as the Malegam Committee.

    THE MICRO FINANCE INSTITUTIONS (DEVELOPMENT AND REGULATION) BILL, 2011


    This bill of Micro Finance Institutions (Development and Regulations) Bill 2011, has put all microfinance institutions under the jurisdiction of RBI. This Bill provides for a detailed regulatory framework for the Microfinance industry with the RBI as the primary regulator for all types of MFIs. The MF industry fully supports the Bill. It believes that the Bill development of the industry; will promote the healthy

    Catalyze the microfinance sector; And, allow the MFIs to better serve the national agenda of financial inclusion and inclusive growth.

    THE MICRO FINANCE INSTITUTIONS (DEVELOPMENT AND REGULATION) BILL, 2011


    Constitution of Micro Finance Development Council (formulation of policies and measures )
    lending activities recovery practices impact of measures for financial literacy and inclusion etc

    State Advisory Council Registration (R.B.I Act, 1934 and the Banking Regulation
    Act, 1949 ) -- All microfinance institutions must register with RBI Application for registration Grant of certificate. Power of Reserve Bank to cancel certificate of registration. Obligation to create reserve fund. Accounts and balance sheet. Audits and special audits

    Contd.Functions and powers of R.B.I


    Orderly growth of MFI Formulating and facilitating appropriate policy Setting or facilitating the sector related benchmarks and performance standards . Development of credit rating norms Books of account Calling for information and data from MFIs Facilitating institutional development Power to issue directions to micro finance institutions Margins to be maintained (maintain the percentage of margin as may be specified by the Reserve Bank by regulations from time to time) Inspection Restructuring of Business. Micro Finance Development Fund with RBI for receiving grants, donations and granting loans and other financial support for various purposes.

    Advantages Designation of RBI as the sole regulator would be a positive step forward for the sector. Would lead to a great reduction of regulatory uncertainty. Issues in the bill: Implementation of Priority Sector Lending Qualification . Margin and Interest Rate Cap Heavily favor larger institutions who can adapt to the changes more easily due to economies of scale, advanced MIS systems, and higher operational efficiencies.

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