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There are some signs of easing of equity and loan fund flows into the microfinance sector in the second quarter of 2011-12, according to a State of the sector report-2011.
The report, authored by Mr N. Srinivasan, formerly of Nabard (National Bank for Agriculture and Rural Development) and an independent consultant, said the immediate future holds out a promise that the sector will recover.
STACKED AGAINST
But the long-term future appears not too rosy, in view of the various factors stacked against it, including competition from peer models and initiatives.
Mr Srinivasan listed them out: stiff competition from banks through their business correspondent (BC) model; a restructured self-help programme (SHG); the National Rural Livelihood Mission (NRLM) that would use institutions of the poor to deliver financial services; and the impending rollout of mobile-based financial services.
Even as they emerge from the current struggle for survival, the MFIs should rethink their long-term business objectives and competition strategies.
The SHG II will hopefully remove the cobwebs and infuse fresh energy into members, groups and banks and supporting institutions.
CONVERGENCE ISSUE
Achieving a convergence of SHG-Bank Linkage Programme (SBLP) with NRLM, the Mahatma Gandhi National Rural Employment Guarantee Programme (MGNREGS) and the financial inclusion programme is one of the tasks before Nabard.
But, overall, the dark clouds seem to be clearing in the short-to-medium term, the state of the sector report said.
With some regulation in place and more comprehensive regulation on the anvil, the MFIs will get an identity and will be able to operate under a set of known norms with certainty.
PRODUCT PROFILE
The credit reference bureau becoming functional will deal with some issues in customer selection and examination of multiple lending.
The MFIs need to get back to the drawing boards to look at their products and processes and find ways of complying with the regulatory guidelines.
Building confidence in the minds of banks and funders does seem to be a harder task; the MFIs could do with some support from the Reserve Bank of India and the Centre in this.
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