i nc lu s i ve f i nanc i ng
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•
The high loan ceiling of Rs. 5 lakh would provide
ample scope for MFIs to focus on non-poor sections
of borrowers.
•
The Bill leaves scope for MFIs to charge usurious in-
terest rates in course of time.
•
In the matter of the provision of thrift collection,
instead aligning it with the RBI policy the Bill pro-
vides for the central government to make rules. This
may create overlap or conflict of jurisdiction with the
regulator.
•
Issues like multiple lending, over-indebtedness, mul-
tiple memberships and coercive collection measures
are not addressed by the Bill.
The PCF proposed the establishment of a three-tiered
Micro Finance and Development Regulatory Coun-
cil (MFDRC) with representatives from all agencies
and institutions concerned with microfinance—RBI,
NABARD, SIDBI, MFIs—apart from central govern-
ment, state governments and local elected representatives
to oversee the functioning of the sector.
The
Report of the PCF
clearly brought forth the
contested character of policy thinking on Indian micro-
finance. Much of the contest concerns the role of the
different institutions that are engaged in microfinance.
RBI supports a bank-led financial inclusion, but sees a
role for other intermediaries. NABARD has been argu-
ing for building complementarity between SHGs and
the financial inclusion intermediaries like BCs. MFIN,
the association of non-banking microfinance companies,
is convinced that NBFCs are effective channels of even
DBT distribution in remote villages. The Indian chapter
of INAFI, or the International Network of Alternative
Financial Institutions, demands an alternative system
which can make banks accountable to the public rather
than ‘having a system which is highly dangerous for the
savings of the public’.
5.4.2 MFIs: From ‘Non-banks’ to Banks?
The policy salience of MFIs has increased of late not
only due to the augmented regulatory control over their
operations but to the prospect of them crossing over to
becoming banking establishments in the near future.
acknowledging the success and contribution of MFIs
and generally concurring with some of the proposals of
the Rangarajan Committee on Financial Inclusion, the
Raghuram Rajan Committee (2009) saw the future
growth of microfinance as constrained mainly by factors
like inadequate supply of finance, unclear regulatory
environment, lack of well-developed management infor-
mation systems and dearth of trained management. Over
the past months RBI has come out with several measures
that are suggestive of its intention to help the regulated
and market oriented MFIs to circumvent some of the
limitations and graduate to formal banking entities by
making use of the available legal options—like setting up
new private sector banks or converting to small bank/
payments banks. Even while continuing as NBFCs they
could link up with banks as their BCs.
Bandhan became the first NBFC MFI to get an in-
principle license to set up a bank. The MFI is working
towards starting the operations in 2015–16. With 58 lakh
borrowers and about Rs. 6,500 crore loan outstanding,
13
Bandhan is one of the largest MFIs in, but is less than a
percent of the size of the largest bank in the country. As
a bank it will have to broad base the clientele, diversify
products and expand spatially. Bandhan hopes to retain
its microfinance clients while doing this
14
. Retraining
the existing staff to acquire new skills and fit into newer
roles in the bank seems to be another challenge before
the MFI. Bandhan has eight training centers which train
1400 staff members every month by 41 in-house trainers.
It is also reported that the composition of clients would
continue to be 70 per cent rural and 30 per cent urban as
it currently is (Box 5.4).
Being the pioneer in theMFI-bank category, Bandhan’s
experience in managing its second transformation would
be an important case to document and analyse. As a
bank, how long can it remain loyal to the micro clientele?
If the bank wants to grow its microfinance portfolio at
the same rate as it has been growing so far, how will it
finance the growth? How will the bank build its deposit
base? These are critical questions that Bandhan would
have to eventually find strategic responses to.
If the grant of license to Bandhan demonstrated
the explicit policy acceptance of microfinance institu-
tions becoming full service banking establishments, the
issuance of draft guidelines for Small Banks by the RBI
in July 2014 opened up another door of opportunity in
