The business of structured
micro finance in India is a new concept in India and it is on the rise. The post 1990 era witnessed opening up of Indian markets to Foreign Direct Investments (FDI) and Foreign Institutional Investors (FII). The Indian micro finance industry offers small quantum of finance in the form of loan to the individual or any organization. The industry of micro finance in India facilitates micro finance for the development of the social standard of the rural mass of India. Further, these micro finances are also offered for the development of the semi-urban and urban areas.
The industry of micro finance in India offers these micro finances through different tailor made financial instruments. These micro finances of India are structured with low rate of interest and with easy repayment options.
Institutions offering Micro Finance in India:
Different types of institutions in India offer these micro finances and they can be non-governmental organizations, credit unions, non-bank financial intermediaries, and commercial banks. These micro finance institutions operate as per the guidelines of the apex bank of India - The Reserve Bank of India. Further, the Reserve Bank of India has formed a group to facilitate the development of the micro finance industry in India. The main functions of these four groups are as follows -
- Structure and sustainability
- Funding
- Regulations
- Capacity building
Recommendations for the industry of Micro Finance in India:
- Creation of an autonomous and professionally-managed National Micro Finance Equity Fund with an initial subscription of Rs 200 crore
- The fund of the banks towards the equity fund are be treated as weaker section lending under the priority sector and the quantum of the equity fund to be raised to Rs 500 crore within the next two to three years
- Creation of a special type of non-banking finance companies to facilitate growth of the micro finance business with initial capital of Rs 25 lakh
- The maximum quantum of deposits mobilized by any such MFI must not exceed Rs 5,000 per investor and all such deposits may be covered by Deposit Insurance Credit Guarantee Corporation
- The Reserve Bank of India should facilitate establishing more micro-finance funds
- Subsidy funds should be mobilized from Rural Infrastructure Development Fund, National Bank for Agriculture and Rural Development and also as the profits of commercial banks
- The Reserve Bank of India should establish a permanent working group on micro-finance to monitor and review the progress of resources and also undertake the capacity building initiatives
- The RBI shall facilitate establishing business incubation fund for providing venture capital
- All Non-governmental organization or the self help groups, those who facilitate micro finance should transform themselves into mutually aided co-operative societies, maximum within a period of two years
