Finance Minister P. Chidambaram on Tuesday called upon the microfinance sector to work with the Government on financial inclusion and reaching financial services to the poor.

“The financial inclusion architecture is incomplete without microfinance,’’ he said.

Microfinance bill

Speaking at ‘Microfinace India Summit 2012’ in New Delhi, Chidambaram also said the Government was hopeful of the proposed Microfinance Institutions (Development and Regulation) Bill will be shortly cleared by the Parliament's Standing Committee and will be brought to the House for early passage.

Stating that the Government's role is to provide both an enabling policy framework and the funds required for the sector's growth, Chidambaram said the proposed Bill should provide overarching policy support and guidelines for the healthy development of the sector.

Microfinance institutions

Asserting that microfinance institutions can play the role of a catalyst in broadening the scope of services from “micro credit to micro finance’’ and broadening the services to include savings, remittances and insurance as well, the minister exhorted the sector to set special targets to reach out to the poor.

He asked the sector to pay special attention to reach out to areas like the North East, West Bengal, Bihar and UP, where microfinance was either not present or was poorly represented.

Key challenges

He said that the development of “responsible financial practices’’, including “financial transparency, interest rate rationalisation and 'respectful' recovery practices’’ remained as key challenges for the sector, particularly after the “unhappy developments’’ in Andhra Pradesh (where a crisis led to the imposition of a State regulatory law).

He also said the sector needed funds “in line with growth’ from banks and financial institutions, and added that the sector needed to ensure that the data is shared with credit bureaus to ensure against multiple or over-borrowing by the same client.

He also released the ‘State of the Sector Report 2012’ on the occasion.

According to the report, post the SKS Microfinance crisis and the imposition of state-level regulation in Andhra Pradesh, the sector is yet to recover.

The number of Self Help Groups funded by Nabard fell 9 per cent in 2011-12 to 4.36 million.

The total client outreach of the private/non-government microfinance institutions also declined 15.7 per cent in the same year against a rise of 19.1 per cent recorded in the previous fiscal. The gross loan portfolio of MFIs also declined 3 per cent.

(This article was published on November 27, 2012)
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