Microfinance institutions (MFIs) may stop getting cheap funds from banks in the next 2 years if the RBI chooses to implement the suggestions of one of its committees.
A committee formed by RBI under the chairmanship of executive director VK Sharma said in its report that the priority sector status presently given to non-banking financial companies (NBFCs) should be removed.
A NABARD official said, “A big reason why banks lend to MFIs is that these loans are classed as priority sector lending. Without this status, not only will banks charge more for these loans, they will also have to find other options for rural lending to offset these loans.”
Vijayalakshmi Das, MD, Ananya Finance for comprehensive growth and Founder, Friends of Women World Banking, (lender to MFIs) states that in absence of priority sector lending benefits, microfinance will not survive. She said, ” The due diligence carried out by banks will be very different, for one. Today, by virtue of the fact that we lend to the poor, it is easy to convince a banker to lend to us. That advantage will go away”.
The report includes new measures undertaken by the apex bank in introducing financial inclusion in the country like offering permission to banks to start branches in Tier II and Tier III cities without going for RBI clearance.