A recent press report said that the Reserve Bank of India (RBI) has asked the banks to tighten due diligence when giving loans to micro finance institutions (MFIs) to ensure that they follow rules that are to come into effect from the 1st April.
The central bank said that the process should be initiated immediately in order to ensure that MFIs availing finance from the banks are capable enough to put up the systems in terms of corporate governance, human resource management, customer protection and other aspects of the proposed regulatory framework. Reports also said that the banks will have to make compliance certificates mandatory, track MFIs’ business performance and may even demand higher collateral by way of personal guarantee. MFIs provide personal loan to financially weaker sections of society and are considered an important part of India’s growth.
Reports said that banks will put in place systems to examine the field-level operations of MFIs and whether they follow the proposed rules before considering the loan proposals. Mr. Chandra Shekhar Ghosh, chairman and managing director of MFI Bandhan Financial Services Pvt. Limited said that the MFIs will need at least a month to change processes and systems in compliance with the new RBI rules and that the transition will be more difficult for the smaller MFIs.