Microfinance institutions are hoping for an early relaxation of norms on Non-Banking Finance Companies-MFIs by the RBI.

“The discussions are currently on with the Reserve Bank of India of India to address operational challenges in implementation of NBFC-MFI norms,” a senior executive of Microfinance Institutions told Business Line on Thursday.

“The response of the RBI to many of our concerns is positive. At this stage it can only be stated that relaxation of norms is likely very soon,” he added.

Dr D. Subbarao, Governor, RBI, had on Wednesday hinted that capital adequacy and provisional norms could be relaxed in a phased manner.

Entry capital

The existing norms prescribe a minimum entry capital of Rs 5 crore to be labelled as NBFC-MFI, which is tough for small MFIs to meet. Also, the 12 per cent margin restriction adds to the entry barrier. The RBI is likely to review these norms, among others.

However, this move may help small MFIs; the expectations of big players in the industry are slightly different.

“The relaxation of entry capital norms will certainly help smaller MFIs. However, in view of the paradigm shift in the microfinance sector, it is no longer enough to meet entry barrier norms,” Mr S. Dilli Raj, Chief Financial Officer, SKS Microfinance Ltd, said.

The focus now is on quality of assets, efficiency of operations, compliance, transparency, governance and globally benchmarked customer protection practices, he added.

AP FOCUS

The likely revision of norms by the RBI could be more Andhra Pradesh-centric in view of the prevailing situation in the State, the biggest market for MFIs prior to October 2010.

“Most parts of the existing regulation are good for the industry, expect maybe the provisioning norms. Apart from tweaking this a bit, the RBI may relax norms with an AP-specific focus,” Mr P. N. Vasudevan, Managing Director, Chennai-based Equitas Microfinance, said.

nagsridhu@thehindu.co.in

(This article was published on July 5, 2012)
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