Mumbai: Microfinance institutions may soon have a different status and be called ‘Microfinance NBFCs’, if the recommendations of the committee on financial inclusion are accepted by the Government and the RBI. While there will be no relaxations in the start capital for these Microfinance-NBFCs (MF NBFC), they may have easier foreign investment norms and tax sops.
The current guidelines used by the Foreign Investment Promotion Board require a minimum investment of $5 lakh from a foreign entity. However, since the initial capital needs of MF NBFCs may not be very large, the committee has recommended that the minimum amount of foreign equity for MF NBFCs may be reduced to $1 lakh.
The committee on financial inclusion chaired by Dr C. Rangarajan, Chairman of the Economic Advisory Council, specifies that at least 80 per cent of the assets of MF NBFCs should be in the form of micro credit.
The committee also suggested that like housing finance and infrastructure companies, MF NBFCs should be given tax concessions, to the extent of 40 per cent of their profits, as a proportion to their business portfolio in excluded districts as identified by Nabard without attracting tax.
The committee feels that the supervision of MF NBFCs should be delegated to Nabard by the RBI. Currently, the Micro Financial Sector Bill, 2007 leaves out NBFCs from their purview, while placing other micro finance players within the regulatory ambit of Nabard.
MF NBFCs may also be allowed to become business correspondents of banks for providing savings and remittance services.
“Although there are demand side constraints and the capacity to produce has to be enhanced, the report is addressed at how to improve the credit delivery system,” Dr Rangarajan told presspersons here today.
The committee has recommended the formation of a National Mission on Financial Inclusion comprising representatives from all stakeholders (the RBI, Central and State governments), which will aim at achieving financial inclusion within a specific time frame.
Among the other recommendations, the committee suggested that commercial and regional rural banks should set themselves a minimum target of covering 250 new cultivator and non-cultivator households per branch per annum “In five years, we hope to cover around 50 per cent of financially excluded households, say 55.77 million households. The balance can be covered by 2015,” Dr Rangarajan said.
The committee endorsed the constitution of two funds with Nabard-the Financial Inclusion Promotion and Development Funds and the Financial Inclusion Technology Fund each with a corpus of Rs 500 crore. This will be contributed by the Government, the RBI and Nabard.
Regional Rural Banks will receive a shot-in-the-arm, as the committee recommended that 27 RRBs with negative net worth be recapitalised to the extent of Rs 1,800 crore.
Significantly, the committee recommended an amendment to the Nabard Act to enable it to provide micro finance services to the urban poor.
The success of self-help groups has prompted the committee also to recommend the formation of ‘Joint Liability Groups’ which would cater to share croppers, oral lessees and tenant farmers whose loan requirements are much larger but who have no collaterals to offer. “Compared to an SHG which has 12-15 members, these groups will have fewer members. Small farmers can pool their holdings and make purchases like fertilisers on common basis,” Dr Rangarajan said.
