Even as most microfinance institutions (MFIs) have welcomed the Reserve Bank of India (RBI)'s move of bringing them under its direct regulation as a non-banking financial company (NBFC), the former have expressed concerns over meeting capital requirements prescribed in the guidelines issued by RBI.
Last week, RBI had issued guidelines for NBFC-MFIs to have minimum net owned funds of Rs 5 crore, up from Rs 2 crore earlier and capital adequacy ratio (CAR) of 15 per cent, up from 12 per cent earlier. Players operational in Gujarat's microfinance space raised concerns stating the fund raising would become a major challenge in current times.
According to industry insiders, the bitter experience of Andhra Pradesh crisis continued haunting the microfinance industry till recently and uncertainty looms over the investments through equity or bank finance.
"It is a positive development for MFIs. But the situation has not changed much for this industry. Bringing equity investment looks difficult as the net capital requirements have been increased to Rs 5 crore," said Jayshree Vyas, managing director of Shree Mahila Sewa Sahakari Bank (Popularly known as Sewa Bank) in Ahmedabad.
"After the Andhra Pradesh crisis, bringing funds has became a major concern for MFIs. However, post RBI guidelines some new MFIs may start operations, but at the same time several small NGOs having microfinance operations may close down, which may go against the objective of microfinancing," she added.
However, Mathew Titus, executive director, Sa-dhan, a microfinance association based in New Delhi, maintained that it may create difficulty for MFIs to met the set CAR and net-owned capital requirements, but by putting them under NBFC category, the apex bank has brought under its gamut.
But the enforcement of the regulation should have been extended by a year or so, giving some room for the industry to come to normal from its past impact," said Titus adding that in the current situation, it would be difficult to raise capital through equity or bank finances.
Meanwhile, many in the industry have set their eyes on microfinance bill to be tabled in the Parliament during ongoing winter session. The draft bill proposes a minimum equity capital of Rs 5 lakh and making it mandatory for MFIs to register with the RBI.
"There are a few MFIs operational in Gujarat market, while giving them NBFC status would be an encouragement for new entrants. This is a more systematic approach decided by RBI for the MFIs in the country. However, we may also see some mergers and acquisitions of the smaller NGOs or MFIs with networth of about Rs 1-2 crore due to regulatory requirements," said Jayendra Patel, MD, Arman Financial Services Ltd, an Ahmedabad-based BSE-listed diversified MFI.
According to Patel, the proposed microfinance bill may bring some relief for small MFIs. Many national players in microfinance have started scaling down their presence in Gujarat due to lukewarm response after the Andhra Pradesh crisis, he added.